Real estate transactions don't always go as smoothly as we'd like them to. Even when there's a contract in place, there may be times when you, as a buyer, feel compelled to back out of a purchase agreement for a home that's under contract. Here, we'll talk about how to withdraw an offer on a house and when it pays to back out of that deal.
Reasons to withdraw an offer on a house
There are plenty of reasons you might choose to withdraw an offer on a house. These include:
- Your seller is taking too long to accept the offer you've made.
- Your mortgage doesn't come through.
- The home you're looking to buy doesn't have a high enough appraisal.
- Your home inspection reveals too many issues with the house and your seller refuses to address them prior to closing.
- Your personal needs or circumstances have changed since the time you made the offer.
Ultimately, the amount of money you stand to lose by backing out of an offer will depend on where you are in your contract.
When is it too late to withdraw an offer on a house?
If you put in a purchase offer on a house and your seller takes too long to accept it, you're in the clear to back out. Unless that purchase contract is signed by both parties, it's not binding, so you can simply withdraw your offer in writing, present it to your seller or your seller's listing agent, and call it a day -- though it may be worth having your real estate agent reach out to the seller's agent to see why there's a holdup.
But let's assume you're already under contract -- that your seller has accepted your offer to purchase his or her home and there's a binding contract in play. What happens if you want to withdraw your offer at that point? The answer depends on the contingency clauses your contract contains, and whether those conditions are or are not met. Let's review these one by one.
1. Financing contingency
Most people can't buy a home outright. Rather, they need a mortgage to finance it. As such, your real estate contract will likely contain a financing contingency, which protects you in the event you're unable to secure a mortgage. (Keep in mind that this could happen for a number of reasons, even if you're pre-approved for a home loan.) If your withdrawal from your home purchase stems from a lack of financing, you shouldn't suffer any financial penalties.
2. Appraisal contingency
The home you're looking to buy must appraise for a certain amount in order for your mortgage to go through. After all, your lender won't give you a mortgage if the value of the home you're looking to buy is less than your loan amount. If that appraisal comes in low, you don't necessarily need to withdraw your purchase offer. Rather, you can try to negotiate a lower purchase price with your seller. If your seller comes back with a reasonable counter offer, you may be able to salvage your transaction. If not, you should have the right to cancel the contract on the basis of a low appraisal.
3. Inspection contingency
It's impossible to know what problems are brewing with a house until you complete a home inspection. In most cases, you can terminate the contract you've signed without penalty if your home inspection reveals too many issues and your seller isn't willing to fix them. For example, your home inspection might uncover a sinking foundation or a roof that's in serious need of replacement. These are substantial expenses that you, as a buyer, may not have bargained for.