How to Back Out of a Home Purchase
Every home buyer hopes for a seamless home buying process, but that is not always the case. Whether your needs unexpectedly changed mid-closing, or you made alarming discoveries during your final inspection, there may be moments that leave you wondering “Can a home buyer back out of a contract?”
Can a Home Buyer Back Out Before or at Closing?
When it comes to backing out of a deal before closing, this is typically very possible if no contract has been signed. If the home buyer and home seller have not yet signed a contract that transfers the ownership of the home from one party to another, backing out of the sale process is technically legal.
As our mortgage agent, Victoria Ishai notes “If you have already signed an agreement to purchase the home, there are still a few ways in which you may be able to back out”. The most obvious solution is a cancellation clause. Some home sale contracts contain a clause allowing for a “back-out period” of a pre-determined length (e.g. 3 days after signing) during which the home buyer can still legally back out of the contract. Other contracts may allow for cancellation of an agreement in exchange for a financial penalty of some kind (e.g. you may have placed a deposit that is non-refundable).
There are also “subject clauses” in most home purchase agreements. For example, a buyer’s agreement to purchase a home may be subject to the results of the home inspection. If the buyer were to discover something alarming during the inspection process, they would then have the legal right to withdraw from the contract.
In order to best position yourself for success, we recommend working with a legal professional who can help you draft up a well-protected contract, and inform you of any other laws that pertain to your specific case or region. For instance, condo buyers in Ontario are entitled to a 10-day “cool off” period post-purchase under the Condominium Act, during which they can legally back out of the purchase.
Can a Home Seller Back out of an Accepted Offer?
When a home seller is presented with a buyer’s official offer, they have four choices: they can accept the offer, reject the offer, ignore the offer, or present a counter-offer. At this point in the process, it is completely fair game for a home seller to not move forward with an offer, but what happens if they have already accepted?
Typically, once an offer is signed, the seller is also bound by the contract to the same degree as the buyer. They cannot back out without facing legal consequences. Of course, there are some exceptions. There are several clauses often found in a purchase agreement that allow the seller to pull out of the deal under specific circumstances. For instance, if the buyer fails to pay their agreed-upon dues.
What Can Happen if You Back Out of a Home Purchase?
As per our principal mortgage broker, Steven Tulman , “if you back out of a home purchase after closing, you may face legal or financial consequences”. You can lose your deposit and potentially be sued by the seller for any loss of value they experience upon re-listing the property. You could also be held liable for the seller’s legal fees, mortgage carrying costs, and other losses suffered.
The best way to avoid this situation is to consult both a legal professional and a mortgage broker as you work through the terms of the Agreement of Purchase and Sale. Knowing your options ahead of time can save you a lot of trouble in the long-term, and can allow you to exit before closing—if really needed.
Our expert team of brokers can help you ensure that the property you are looking to buy aligns with your financial goals and capacity, while also guiding you through the closing process. We can furthermore help you prevent any financial surprises by locking in a rate early, and helping you get pre-approved for your mortgage. Contact Clover Mortgage to get started with a free consultation today.
FAQ
How close to closing can you back out of buying a house?
Technically, you can back out of a contract right up until closing, but the longer you wait, the more you place yourself at risk for legal action from the seller. Sometimes, you can back out after closing, if a “take-back” period was specified after the closing date. You furthermore can back out of a tentative contract if not all of the clauses have been met (e.g. the home failed to pass its property inspection ).
What happens to deposit when buyer backs out?
This can vary on a case-by-case basis, however in many cases, backing out of a home purchase agreement can result in a loss of deposit. Most contracts will specify whether or not the deposit will be forfeited, and under what circumstances that would be the case.
Can I walk away from a contract?
If they contract has not yet been finalized, you can walk away from it legally (although you might still face financial penalties). If a contract has been finalized, there are a few steps you need to take in order to determine what options are available to you:
- Make sure you’re clear on the terms of your agreement, especially deadlines, conditions, and clauses
- Seek legal advice from an accredited real-estate lawyer to understand your rights and liabilities.
- Let your lawyer, agent, and broker know immediately, to minimize the potential fallout, and ensure you are well-informed of your current situation.
