When Can a Seller Back Out of a Real Estate Contract?

Why might a seller want to back out of a home sale?

It’s “pretty common” for someone who sells their home to try to back out of the real estate contract, according to Schorr. In his nearly two decades of experience representing buyers and sellers in litigation, these are the most likely reasons sellers attempt to renege on their plans:

A higher offer comes in

It’s not unheard of for sellers to receive higher offers after signing a purchase agreement and want to back out of the contract.

Typically, the seller’s agent stops accepting offers once the home is pending sale. However, it’s often a good idea to table backup offers, which may come into play if the sale falls through. “Seller’s agents are obligated to present all offers to the seller, even after a contract has been signed,” says Garrett.

When backup offers are considerably higher than the current sale price, the seller might attempt to void the outstanding contract in favor of a higher offer. “It’s not a legitimate reason” to terminate a contract, Schorr advises, “but it’s probably the most common.”

When considering backup offers that are higher than the purchase price, it’s a good idea for sellers to consult with their agent, who can speak to current market value. If a home appraises for less than the selling price and the buyer doesn’t sign an appraisal gap contingency or an appraisal waiver, the sale may fall through. We’ll look at buyer contingencies later in this post.

A backup offer becomes a purchase agreement the moment a seller accepts and signs it. However, the seller typically cannot accept a second offer while under contract to sell. In addition, if the second buyer has made offers on multiple houses and has entered into another home purchase agreement, it may be difficult to hold them to the agreement. For these reasons — along with any potential legal implications — it can be risky to attempt to back out of a purchase agreement to accept a higher offer.

Change in circumstances

Whether it’s a relocation falling through, a family emergency, or the loss of a job, a change in circumstances can make it hard, or near impossible, for a seller to go through with the sale.

Nowhere to go

The seller has failed to find a replacement home within the closing period, and would rather stay put.

Cold feet

The love a seller has for their home doesn’t just disappear when the contract goes into effect. A home has happy memories that can make it difficult to part with. The sale might create unhappiness or anxiety in family members. For these reasons, some sellers feel like they’re making a mistake as the closing date looms.

Difficult buyer

Some buyers can be difficult to deal with, making unrealistic, excessive, or inconsiderate demands on the seller’s time. Unreasonable buyer requests can try a seller’s patience and create doubt about the sale.

Disagreements with the estate

If the home is being sold through an estate, tension among family members could lead to disagreements about whether now is the right time to sell.

There are endless reasons a seller may wish to back out of a signed real estate contract, but most of them don’t fall under the appropriate legal grounds to void a contract.

When can a seller legally back out of a real estate contract?

Legally speaking, it’s very challenging for a seller to back out once the contract has been signed without facing some kind of blowback from the buyer. In the case of contracts, real estate law “heavily favors the buyer,” Schorr says. In his caseload, he rarely chooses to defend the seller unless under the following circumstances:

1. The home sale is a verbal agreement

The most obvious condition for a seller to legally back out of a purchase agreement is if the agreement to sell is not in writing. If the seller and the buyer didn’t sign a legally binding real estate contract, the seller can usually back out at any time for any reason. In fact, throughout the U.S., real estate purchases typically require a written contract.

2. Seller included a suitable housing contingency

Sellers trying to buy and sell a home simultaneously may include a suitable housing contingency in their real estate contract. In the case that the seller isn’t able to secure suitable housing, they might have grounds to back out of the contract. This contingency only applies if it has been explicitly written into the contract.

Note that a home sale or replacement contingency typically allows the buyer and seller to extend the closing date to allow the seller more time to purchase a home; however, the contingency can be written in such a way that allows a seller to back out of the sale if a replacement property cannot be found.

While a suitable housing contingency may seem prudent, they’re not especially common.

“A suitable housing contingency isn’t customary for sellers here. It’d be very rare that you see that in a purchase agreement in Virginia,” says Garrett.

3. Contract includes an attorney review period

Some states require a five-day attorney review period or you may have one written into the contract. You can back out of a signed real estate contract if you’re within the five day period.

4. Buyer doesn’t meet their obligations

Often, a compelling case for a seller to back out has little to do with their actions and more so with the buyer’s. If the buyer doesn’t meet deadlines outlined in the contract, such as securing a mortgage or performing the inspection within the agreed-upon timeline, the seller may have grounds to cancel the contract.

Some real estate contracts include a time is of the essence provision, which stipulates that both parties are expected to fulfill the contract in an appropriate amount of time. “Many buyers don’t perform in a timely manner,” Schorr says, “and those can be big outs for the seller.” If that’s the case, the seller will want to pay close attention to dates and the buyer’s actions to build a compelling case to pull the contract.

5. Scams or hustlers were involved

In extreme cases, the seller might have grounds to back out of a contract if they’ve been swindled or agreed to sell the house for an incredibly low price. Schorr experienced this in the case of elderly sellers getting offers from aggressive buyers. “These are extenuating circumstances, but I’ve represented between three to five sellers in cases like this over the past year,” he says. In his experience, the sales price has to be blatantly below the market value — a lowball offer won’t void the contract for the seller.

Do buyer contingencies allow a seller to back out of the sale?

As noted, most home purchase contracts are built to protect the buyer, not the seller, with buyer contingencies typically built into the contract by default. Your buyer will likely have the freedom to walk away at any three of these moments without losing their earnest money, effectively voiding the contract and giving the seller an out, too.

Inspection contingency: If a buyer finds something they’re unhappy with during the inspection process and can’t make amends with the seller, they can walk away with no consequences. While it is reasonable and fair for the seller to negotiate the repairs they will make or pay for, and some repairs may be required by the buyer’s mortgage company, the seller isn’t obligated to do so by law.

Garret says, “We had a seller who decided not to sell and made it clear upfront that they were going to be uncooperative. They refused to agree to any repairs when the home inspection came in. They refused a second showing so the buyers could show the home to their parents. When the buyer wanted to measure for drapes and furniture, the seller wouldn’t allow it. While the seller didn’t have the unilateral right to cancel the contract, they frustrated the buyer to the point that they backed out of the sale.”

While that may seem like an unsavory way to get out of a real estate contract, ultimately, it’s within the seller’s rights. “The seller’s agent is bound by a code of ethics but not the seller. The seller gets to decide for themselves if they’re going to be reasonable, fair, or ethical,” states Garrett.

Appraisal contingency: If the appraisal comes in low, the buyer may negotiate for a lower sale price. However, the seller isn’t obligated to lower the sale price. If negotiations fall through, the buyer has the option of backing out of the contract unless the buyer has signed an appraisal gap guarantee promising to cover the discrepancy with their own cash.

Financing contingency: This protects the buyer in the event their mortgage falls through for any reason. A buyer may negotiate for more time to secure financing from a different loan company; however, the seller is under no obligation to extend this courtesy and may walk away from the deal if the buyer cannot secure financing before the agreed-upon date.