|When is it too late to back out of a contract?|
If you’ve signed a purchase agreement and all contingencies have been removed, it’s too late to back out of a home sale without consequences. Sellers who try to back out of a contract without having the proper contingencies in place can face legal troubles, and in extreme cases, be forced to sell the house.
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Most sellers are thrilled to sign a purchase agreement — but sometimes, unexpected delays or curveballs make them regret accepting an offer.
In practice, it’s tough for home sellers to back out of a real estate contract, particularly if there aren’t proper contingencies in place. Real estate purchase contracts typically favor the buyer, so sellers who want to back out of an accepted offer can land in legal trouble.
Contingencies are contractual stipulations that can help sellers exit a purchase agreement under certain circumstances. Without them, you’ll have limited opportunities to back out of a deal. There are some methods that can be used to dissuade the buyer from going through with the sale, but it can be difficult and come with legal risks.
If you need expert help navigating contingencies that won’t lock you into a deal without a way out, we highly recommend working with a qualified real estate agent.
Our friends at Clever Real Estate can help you find experts near you. They’ll match you with top-performing local agents who can help sell your house and negotiate a smooth home sale. Best of all, you’ll pay just 1.5% in listing fees — helping you save thousands!
Can a Seller Back Out of a Contract After Accepting an Offer?
Sellers can back out of an accepted offer if they have:
- A home of choice contingency
- A kick-out clause
A home of choice contingency states that the seller has a specified time period — usually 30 to 60 days — to find a home to purchase before making a sale. If the seller can’t find a suitable home, they can cancel the contract.
A kick-out clause says the seller can “kick” a buyer out of a purchase agreement if another, better offer comes along. The kick-out clause is often used to amend the buyer’s home sale contingency, which says the buyer can’t complete the sale until they sell their current home.
If a buyer has a home sale contingency and you add a kick-out clause, you would be able to field other offers on your home while the buyer is waiting to sell their current home. If a better offer comes in, you must notify the current buyer and give them 48–72 hours to remove their home sale contingency. If they don’t, you could back out of the contract.
If you don’t have those contingencies, you can use a notice to perform to begin the backing-out process — although it’s not guaranteed to work.
» Learn More: The Most Common Home Sale Contingencies
What Is a Notice to Perform?
If you want to back out of an accepted offer, an essential document you have to file is a notice to perform.
A notice to perform is a tool a seller can use to push a buyer to fulfill contractual obligations on time. It’s the first step you can use to cancel a home sale, and it sends a signal to the buyer that they need to move ASAP.
Some reasons a seller may issue a notice to perform:
- The buyer hasn’t put down enough earnest money, or hasn’t done so on time.
- The buyer is late or hasn’t provided necessary or requested paperwork.
- The buyer hasn’t presented proof of funds.
- The buyer hasn’t submitted a preapproved or prequalified letter.
- The buyer has not completed a contingency (such as a home inspection) on time.
A notice to perform allows the seller to back out of the home sale if those certain conditions aren’t met, typically within a 48-hour time period. In some states, like California, a notice to perform is necessary before either party can legally back out of a contract.
If you’re having trouble writing the right kind of purchase contract or just need general assistance when selling, consider getting expert help from a licensed real estate agent.
We recommend our friends at Clever Real Estate, who will match you with local agents that can help craft a purchase contract and sell your home for just 1.5%. That’s a fraction of the fee that traditional agents charge, saving an average of $7,000. Clever will match you with several top-performing agents, so you can handpick which one has the selling strategy that matches your needs with zero obligation or upfront fees!
When You Should Use a Notice to Perform (and When You Should Wait)
A notice to perform is a legal document, and it’s an aggressive move. It signals that you’re ready to cancel the sale if the outstanding problem isn’t solved, and it gives the buyer a stringent timeline of 48 hours.
Even if the buyer wants to solve the issue, if they can’t do so within the 48-hour deadline, you’re essentially telling them to get lost.
As a seller, you should use the notice to perform if:
- The buyer is unresponsive.
- You’re ready to cancel the sale.
- You don’t care if the sale falls through.
If you still want the sale to close, the best course of action is to have your real estate agent gently remind the buyers of their contractual obligations. Talk to the buyer and find out what’s causing the delay. Having an agent in your corner will help determine if the issue can be resolved or if it’s a smarter move to begin the contract cancellation process.
If you’re serious about getting the best possible deal on your house, then you should hire a great real estate agent. But we think the standard 2.5–3% fee of a traditional agent is unreasonable — that’s why we recommend our friends at Clever, who offer a pre-negotiated listing fee of just 1.5% for most home sales. Clever will match you with top-rated, full-service local agents from trusted brokerages like Berkshire Hathaway, Coldwell Banker, and Keller Williams. There are no upfront costs and there’s no obligation to use Clever if you don’t meet an agent you love.
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Can a Buyer Sue a Seller for Backing Out of a Contract?
Buyers can sue a seller if the seller breaches the contract by backing out. A judge may ultimately force the seller into selling them the home, or award other monetary compensation, but the legal process can be long and expensive.
Buyers can also sue the seller over earnest money (with interest) if there’s a dispute over which party keeps it. Buyers can also sue for compensation for any money they put into the deal beforehand.
Seek the advice of a lawyer before beginning a lawsuit. Each transaction is unique, and state laws vary.
Can a Buyer Back Out of an Accepted Offer On a House?
Compared to sellers, buyers have an easier time backing out of a real estate contract.
If the buyer has contingencies in place, they should be able to back out of the contract and keep their earnest money.
For example, let’s say you’re buying a home — but the inspection uncovers aluminum wiring. If you have an inspection contingency, you can cancel the contract and keep your earnest money.
If there are no contingencies in place, the buyer can still exit the deal but they will lose their earnest deposit, which is usually about 1–3% of the purchase price.
» Learn More: How to Remove Common Contingencies
The buyer can also use a notice to perform on a seller if the seller is dragging their feet on something. For example, a buyer may issue a notice to perform to the seller if:
- The seller won’t remove a contingency by the agreed upon contingency removal date.
- The seller neglects to prepare a report of past insurance claims.
- The seller refuses to complete repairs.
- The seller won’t provide homeowner association (HOA) documents.
- The seller won’t provide legally required disclosures.
If a buyer issues a notice to perform, the seller usually has 48 hours to clear up the issue. If the seller doesn’t fix it, the buyer should be able to cancel the contract without penalty. However, you should check with your real estate agent or lawyer before doing so, just to be sure.
Can a Seller Sue a Buyer for Backing Out?
A seller can sue a buyer for backing out of a purchase agreement. To decide whether or not it’s practical, we recommend consulting a real estate attorney.
A buyer who cancels a contract without proper contingencies will lose their earnest money. Usually the seller keeps that deposit as a penalty and moves on to find another buyer. However, both parties could end up in a lawsuit over who keeps the earnest deposit when a sale goes bad.
The seller could also sue the buyer for breaching their contract and seek compensation for additional damages or specific performance.
Damages sought can be limited by state law or what is written in the purchase contract — some states limit damages to just earnest money, and the seller may be unable to list their home while the lawsuit is underway. Some contracts include a liquidated damages clause, which provides for a certain amount of money to the seller if a deal falls through at the last minute.
Lawsuits are expensive and time-consuming, so we always encourage sellers to seek an attorney’s advice before taking this drastic step.
If you are seeking legal advice first, our friends at JustAnswer will connect you with the best real estate attorney to field any questions. Their attorneys can provide you with personalized help within minutes, so you can confidently make the sensitive decision of whether to pursue a complaint. Plus, JustAnswer’s convenient membership model gives you the answers you need and saves you hundreds of dollars on average compared to a traditional lawyer. However, if you plan to take legal action, you may want to hire an attorney from the onset.
Serious about selling? You need an agent.
If an offer is accepted and there are no contingencies remaining on the purchase contract, it’s too late to back out of a home sale without consequences. For buyers, this usually means forfeiting the earnest money, which is usually 1–3% of the purchase price. Learn more about how to write a good real estate contract.
A seller can back out of a contract without consequence if they have the right contingencies in place. But since real estate contracts favor the buyer, it’s much more difficult for a seller to walk away from a home sale without taking proper precautions. Learn more about how sellers can protect themselves in a home purchase contract.
An offer is not yet legally binding if certain contingencies are still in place. A seller could also cancel a contract on a buyer if the buyer can not meet contingencies on time, although they first need to give the buyer a notice to perform. Learn more about notices to perform and how to use them to back out of a home sale.
Buyers can back out of an accepted offer without penalty if they have the proper contingencies in place. If all contingencies have been met or removed, the buyer can still back out of an offer, but they will lose their earnest money — and they could be liable for damages if the seller sues. Learn more about how buyers can back out of a contract.
A notice to perform is a tool that buyers or sellers can use to push the other party to perform a contractually obligated task. Using a notice to perform is often the first step in canceling a home sale. Learn more about the notice to perform.
A seller may be able to sue a buyer for backing out of a contract if they can prove the damages for specific performance. However, lawsuits are costly and usually not worth the price, since the seller will not be able to list their home for sale while entangled in court. Learn more about suing a buyer for backing out of a contract.