In most cases, a real estate deal is not over until all paperwork is signed, funds are transferred and you hand over the keys to the buyer. Until then, buyers can legally back out of the contract—but sometimes not without consequences.
As a seller, you invest a lot of time and money trying to sell your house. That is why when a buyer backs out, you could end up with a lot of wasted resources.
So, yes, a buyer can back out of your deal. However, you may have options for financial recovery.
When a buyer backs out after signing
A buyer can back out of a purchase and sale agreement even after signing it, but the penalties will depend on the nature of the contract and the reason for canceling the deal.
One common scenario is when buyers back out because of unmet contingencies. Contingencies are conditions you or the buyer must meet for the contract to become binding.
For example, a home inspection contingency allows the buyer to conduct a home inspection and back out if there are significant issues. Other common contingencies include financing, appraisal and title contingencies. In such cases, the buyer typically gets their earnest money deposit back.
But what if all contingencies are met and they still back out? If this is the case, you may have the legal right to keep their deposit as compensation. Buyers typically cannot cancel a contract for no reason without facing penalties.
When a buyer backs out of escrow
Escrow is the phase where a neutral third party holds the money or assets until you and the buyer meet all the conditions of the transaction. Backing out this deep into the process can have more consequences for the buyer, but it can still happen.
You may be able to keep the deposit if:
- All contingencies are met
- There is still an unmet contingency, but the deadline has passed
Most purchase agreements have contingency deadlines. If a buyer does not formally cancel by that date, their deposit may be nonrefundable.
When sellers can sue
Although not common, a seller can sue a buyer for backing out, especially if they do so after signing the contract. Walking away from the deal without a valid reason may count as a breach of contract.
Consider seeking legal guidance
A real estate deal can become complicated when a buyer pulls out of the purchase. Nevertheless, you may have several options to recover compensation.
Consider talking to a real estate attorney who can help you seek recovery for lost resources and help prevent it from happening in the future.