You put your home on the market, find a buyer, and sign a purchase agreement. But then something unexpected makes you reconsider selling your house. Now comes the question: Is it possible for a seller to back out of an accepted offer?
While sometimes you can cancel the contract, in many cases, doing so without cause can result in lawsuits, financial loss, and damage to your reputation. Here, we talk about the legal ways to get out of a contract, tactics you should avoid, and steps to take if you want to back out of a contract before closing.
Need to save on realtor fees? Clever can help you find experienced agents in your area who provide full service for just 1.5% commission. Take a short quiz to get started and learn more about your selling options.
Why would homesellers want to back out of a contract?
A signed contract indicates that the sale is moving toward closing. Purchase agreements are legally binding contracts, so you would have to have serious reasons to back out. These usually include:
- Receiving a better offer
- Inability to find a new home in time
- Change in personal situation (such as serious illness, job loss, divorce, or other unforeseen issues)
- Strong emotional attachment and seller’s remorse
- Disputes between co-owners or family conflicts
- High property appraisal, which sparks regret
- Significant shifts in the real estate market
How sellers can get out of an accepted offer
Sellers can’t simply tell buyers they’ve changed their mind and walk away. Usually, you should only attempt to cancel a purchase agreement if:
- It's absolutely necessary, and you fully understand the consequences.
- You have a sound legal avenue to escape the sale.
If you sign a purchase agreement, it becomes a legally binding contract. Parties are only released when:
- The sale is complete.
- One party uses an exit clause to terminate the contract.
- Both parties agree to modify or cancel the contract.
Using the wrong tactics to get out of a sale, or cutting corners when attempting to use valid ones, could quickly land sellers in a legal minefield.
"Real estate contracts are legally binding, but both buyers and sellers have specific contingency windows that allow them to cancel the agreement without legal penalties," notes Loodmy Jacques, a real estate agent in Florida.
"Sellers have far less flexibility once they’ve signed a contract," he adds. "Backing out without a valid legal reason, like a title issue or a buyer not meeting a deadline, could open the door to lawsuits or force the seller to pay damages." Which is why, he says, it's important to work with an experienced agent.
Reasons sellers can terminate real estate contracts
Assuming the buyer holds up their end of the bargain, it’s tough for sellers to back out of a purchase agreement.
That said, some possible scenarios allow a seller to terminate a contract, even when the buyer wants to follow through with the sale:
- Declining to sign the contract
- Seller contingency
- Buyer breaches the agreement
- Mutual cancellation
Let’s take a closer look at each of these situations and how a seller may be able to terminate a purchase agreement in each of them.
Declining to sign the contract
A purchase agreement only becomes legally binding when it's signed by both the buyer and seller.
A verbal or handshake agreement is usually not enforceable in a real estate transaction. Preliminary offers or letters of intent are also typically not legally enforceable.
So sellers can still walk away without legal and financial penalties after a verbal agreement but before a formal signing.
Seller contingency
The most straightforward way for sellers to back out of a signed contract is to exercise a contingency — a clause in the agreement that allows one or both parties to walk away under certain conditions.
Note that all contingencies have to be explicitly written into the contract before signing for either party to be able to terminate the contract legally via this route.
Most contingencies in purchase agreements protect buyers, such as a financing or inspection contingency. However, though less common, seller contingencies do exist, particularly in highly competitive markets.
Here are the most common contingencies sellers can use to terminate a signed contract legally.
| Type of contingency | How it works |
|---|---|
| Attorney review |
|
| Home of choice |
|
| Kick-out clause |
|
Seller contingencies can be an excellent way for sellers to protect themselves, allowing them to back out of a real estate contract before closing. But keep in mind that adding contingencies may put some potential buyers off, which can be especially critical in a buyer’s market.
As real estate attorney Matthew Roberts from Ligris & Associates notes:
“A seller is free to put in whatever clauses they want into a purchase and sale agreement to give them 'back out flexibility.’ However, because this kind of language would be quite atypical, it would be a red flag to a buyer and would probably result in an impasse.”
Buyer breaks the contract
Another situation in which the seller may be able to back out of the sale is if the buyer violates specific terms of the agreement. Some common breaches include:
- Missing the deadline to make their escrow deposit, secure financing, or close by an agreed-upon date
- Not informing the lender or seller of changes to their financial situation that could prevent them from securing their loan
- Insisting on renegotiating terms after contingencies expire
Remember that even if the buyer breaks the contract, a seller cannot simply walk away and put the home back on the market. Typically, the seller must give formal notice to the buyer that they’re in breach of contract and then wait several days to see whether they comply.
Imagine a seller puts a home on the market in California, and the buyer fails to secure a loan by the contract deadline and wants to walk away from the purchase. Here’s how the seller can approach this situation:
- Review the contract terms: A purchase agreement should dictate what constitutes a breach of contract and the most common course of action.
- Issue a formal Notice to Perform: This formal written notice demands that the buyer cures a breach within the required timeframe (minimum of two days, according to state laws). If the buyer cannot comply, the contract is legally terminated.
- Retain the earnest money deposit: If the contract includes a liquidated damages clause, the seller can keep any earnest money deposit (1-3% of the purchase price) as compensation.
- Pursue additional damages. The seller can sue to recover consequential damages (e.g., relisting fees, lost opportunity costs) and any difference in final sale price, if applicable.
Generally, the state laws and the contract itself dictate when and how a seller can terminate a purchase agreement based on a buyer's breach of contract.
Buyer exercises one of their contingencies
In some cases, a buyer may want to walk away from the sale based on one of the contingencies. The two most common reasons for this are if the home inspection reveals problems or if the home appraises for less than the agreed-upon sale price.
For example, imagine the home inspection uncovers significant issues, such as extensive plumbing problems. In this case, if the buyer decides to back out of the deal, it gives the seller a chance to cancel the sale without any consequences.
Mutual cancellation
In some cases, especially if a seller wants to back out of the contract due to personal emergencies, it is possible to persuade the buyer to cancel the contract with no obligations.
When sellers present a genuinely compelling reason, such as a death in the family or a divorce, a more empathetic buyer might agree to release them from the contract. However, it’s the buyer’s decision whether to agree to the contract cancellation.
The risks of improperly terminating a real estate contract
Improper real estate contract termination can expose a seller to significant financial and legal risks and harm their reputation. Here are some of the most common consequences a seller may face.
| Consequence | Description |
|---|---|
| Court-ordered sale (specific performance) | A judge may order the seller to complete the sale and transfer the deed to the buyer. |
| Paying monetary damages to the buyer | The seller may have to pay compensation for buyer expenses incurred. State laws determine what specific costs the buyer can recover. They're generally eligible for compensation for temporary housing costs, due diligence costs, and court fees. |
| Covering compensation to the real estate agent | Sellers may owe realtor commission if the property attracts a "willing and able" buyer. So if the buyer fulfilled their contractual obligations until the seller breached the purchase agreement, a court could order the seller to pay the commission (typically 5-6% of the sale price). |
| Reputation damage | Backing out of a contract improperly can cause damage to the seller’s reputation and make future transactions more difficult. |
| Possible lis pendens | If the buyer sues the seller, they'll likely file a legal notice ("lis pendens") on the property. Selling a home with a lis pendens is difficult. The new owner would become liable for the result of the lawsuit. |
Risky tactics that could get you sued
Without a clear legal way to get out of the contract, sellers may be tempted to give in to their frustrations and refuse to abide by the purchase agreement.
Some of the most commonly employed — but ill-advised — tactics sellers resort to are:
- Over-disclosing problems to scare buyers away
- Willfully breaching the contract
- Denying the buyer access to the property for inspections
- Failing to complete agreed-upon repairs
- Damaging the home on purpose
- Refusing to deliver a clean title
We strongly advise against these approaches, as they can expose sellers to significant legal and financial consequences.
3 steps to cancel a contract safely
There may be situations where it makes sense to call off a sale, such as an unexpected job loss or a family emergency. Even then, you could still face serious consequences if you back out of the contract incorrectly.
If you're considering trying to get out of a real estate contract, these are the steps to ensure you cancel a contract safely and minimize your risk:
- Consult with your realtor and a real estate attorney before taking any action. They can give you advice on how to navigate this situation.
- Formally notify the buyer of cancellation in writing. Clearly state the reason for cancellation and reference any relevant contract clauses or contingencies.
- If you have to cancel without a clear legal basis, consider offering compensation to avoid legal action.
“If a buyer and seller agree to terminate the deal (on whatever terms they agree to), a seller should consider having both parties sign a release of claims, so that they can be sure a buyer can’t and won’t bring a lawsuit down the road,” recommends Roberts.
Also, if there is a chance to reach a mutual agreement with a buyer, try your best to pursue this avenue. In many cases, people may be understanding, especially if you explain your reasoning.
FAQs about backing out of an accepted offer on a house
Can a seller back out of escrow if the appraisal is too high or too low?
No, the seller can't back out of escrow based on the results of an appraisal.
If the appraisal is higher than the sale price, the seller can't back out to pursue a better offer unless they have another valid reason.
The seller also can't call off the sale because the appraisal is lower than the purchase price. However, a low appraisal could hurt the buyer's ability to get a mortgage.
Can I back out if I get a higher offer?
No, typically a seller cannot back out simply because they received a higher offer; doing so without a valid reason or contingency may expose you to legal and financial consequences.
Can a seller back out of a contract during the due diligence or option period?
Usually not. "Option" and "due diligence" periods give buyers broad discretion to void purchase agreements based on the results of an inspection.
If a seller wants to back out during the option period, they'll need another valid reason, such as the buyer failing to pay their option fee by the deadline listed in the contract.
Can a seller back out after an inspection?
No, the seller can't back out after an inspection.
However, the seller may be able to get the buyer to walk away from the transaction based on a negative inspection report.
If the inspection uncovers serious problems and the seller refuses to renegotiate, a buyer with an inspection contingency may exercise that "escape clause" to terminate the purchase agreement.
Can a seller back out of a contingent offer?
A seller can only back out of a contingent offer if the purchase agreement includes a contingency that authorizes the seller to terminate the contract.
Can a seller still show a house that's under contract?
It is possible to show and even receive backup offers on a home that's under contract. However, real estate agents prefer not to show homes that are under contract unless the purchase agreement includes a kick-out clause.
Can a seller accept another offer after going under contract?
Not usually. Real estate contracts are legally binding, so sellers can't back out just because they received a better offer.
The main exception is when the contract includes a contingency that allows the seller to terminate the sale. One example would be a bump clause, which authorizes the seller to accept a better offer if the first buyer doesn't remove their contingencies.
What happens to the buyer’s earnest money?
If a seller cancels a purchase agreement, the buyer is usually entitled to a full refund of any earnest money deposit.
Will I owe my listing agent a commission if I cancel?
In many cases, you might owe your agent a full commission after they have found a ready, willing, and able buyer, even if the sale does not close.