Selling a house is usually not a simple process, but it can become even more complicated and expensive if the initial deal falls through. Now and then, buyers back out at the last minute. Therefore, as a seller, there are some things you need to know about late-stage exits. If you're thinking about selling your home, find out what you can do to protect yourself if the deal falls through.

Legal Ways That Buyers Back Out
In a home sale, buyers will make an offer on your home and, when it's accepted, a contract is signed between the two parties. At that point, the property's status typically changes from "for sale" to "under contract." That tells other buyers and real estate agents that the seller has a buyer and is in the process of closing the deal. However, a home sale or purchase is not complete until both parties have signed all necessary legal documents transferring ownership of the home at closing.

Buyers often have contingency clauses written into their contracts which are legal ways of "backing out" of the contract at no (or nominal) cost to the buyer. The most common contingencies include:

  • Mortgage Loan Contingency: The buyer must be able to obtain a mortgage loan for the property, usually within a specific period of time of signing the contract.
  • Home Inspection Contingency: The home for sale/purchase must either pass inspection or the seller must agree to make any necessary repairs noted by the inspector. (Learn more about home inspections in Do You Need A Home Inspection?)
  • Sale Contingency: The home purchase depends on the buyer selling his or her property.
  • Appraisal Contingency: The price of the home for sale must either meet or be less than the official appraisal price.

When a deal falls through, it is because either the buyer or seller has a change of heart - or one or more of the clauses in the initial contract has not been met - and one party is no longer willing to go to closing.

When Your Buyer Backs Out
If you have a contract in hand for the sale of your home, you have a few things to lose if your buyer backs out:

Interest From Other Qualified Buyers
Other buyers that may have been interested in making an offer on your home will begin looking at other properties on the market when your house goes "under contract." One of those buyers may have been able to meet the terms of the contract within your desired time frame, but you may not be able to entice them back when your initial deal falls through.

One of the most frustrating aspects of a housing deal falling through is that you have to go back to square one and find another buyer. This takes time and could throw a wrench into your plans to purchase another home and/or your moving timeline.

Your Next Home
If you are buying another home and the contract on that property was contingent on selling your current residence, you may find yourself unable to financially move forward. You may have to back out of the purchase of your next home or figure out another way to finance it if you were depending on the proceeds from your current home to purchase the next.


You may lose money as a result of the deal falling through if you:

  • Failed to include a contingency in your next home purchase contract and you need to break it
  • Need to continue making the mortgage payment on your current home and make a mortgage payment on a new home or pay rent
  • Have to continue paying to keep the property up (i.e. utilities, lawn/landscaping, cleaning, etc.) to show the home when it's put back on the market

Negotiating With Your Buyer
There are steps you can take if your buyer wants to back out. First, make sure that both of the real estate agents involved are communicating and that both you and your buyer are getting copies of all changes or communications in writing. If you or your buyer are not using an agent (or if you're not comfortable with the level of communication you're getting), try talk directly with your buyer to ensure that you fully understand his or her intentions and concerns. See if there are concessions you could make to keep your buyer on track to close. While you may not want to reduce the sale price of your home or lay out more money to make repairs, it may be worthwhile if the potential losses due to a broken deal would be more costly than making desired concessions. (Learn more on how to sell your home in a rough market in 12 Worst First-Time Homeseller Mistakes.)

Also, check your contract to determine what recourse you have as the seller. For example, is there a clause in your contract that would give you legal grounds to sue your borrower for breach of contract and obtain a set percentage of the originally agreed-upon selling price? Or is there a clause that states the buyer is in default if she or he fails to cancel the deal within the stated time frame after signing the agreement?

Warning Signs
There are some warning signs that a buyer is about to back out of closing on the purchase of your home:

  • Failure to return papers signed, dated and completed as instructed
  • Failure to make required payments to third parties (i.e. inspectors, etc.)
  • Not returning calls
  • Missing appointments
  • Numerous requests for contract changes from the buyer's agent

If you come across these warning signs, it may mean that your buyer is getting cold feet. Call your buyer sooner rather than later if you're concerned that the closing is in jeopardy.

Protect Yourself
You can protect yourself from a fickle buyer by being an informed and empowered home seller. Know the details of the contract and make sure that your agent knows how to get what you're entitled to (i.e. earnest money deposit, potential interest, etc.). You may want to have a real estate lawyer review the contract and inquire about your recourse options, including the ability to sue your buyer if necessary.

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