Can A Homebuyer Back Out Of A Contract?

It’s relatively rare for a homebuyer to back out of a signed deal. But selling your home is not always smooth sailing, and sometimes, deals do fall through. Here, we explore the scenarios in which a buyer can back out, common reasons for doing so and what you as the seller can do if it happens to you.

Can a homebuyer back out of a contract?

Yes, it’s possible. There are two main phases of the sale process during which a buyer might decide to back out of a home purchase:

Backing out after signing the contract

A homebuyer can walk away from the deal even after a purchase and sale agreement has been signed. The ramifications will vary based on how the contract is written and the reason for backing out.

For example, it’s perfectly legal for a buyer to back out of a signed contract if the contract included contingencies that were not met. Contingencies outline specific conditions that must be fulfilled in order for the deal to be closed. Typical contingencies are often based around home appraisal, home inspection, sale of a prior home and financing — that is, getting approved for a mortgage.

“If the buyer pulls out because they did not get financing, but they have a finance contingency that’s still active, then the buyer is not in default, but rather used a contingency to void the contract,” says Will Rodgers, an agent with Keller Williams in Northern Virginia. In this type of scenario, the buyer would typically get back their earnest money deposit — the initial “good faith” deposit buyers makes after signing the PSA.

However, if all contingencies have been met and the buyer chooses to back out of the deal anyway, the seller would likely have contractual rights to keep the earnest money. “If buyers cancel simply because they got cold feet, but the only contingency left is the mortgage loan and they qualified to purchase the home, then it would be difficult for them to keep their deposit,” says Rick Albert, a broker associate and director of business development with Lamerica Real Estate in Los Angeles.

Backing out of escrow

Once a home sale has moved to the escrow phase —  a few days before the closing, when closing statements have gone out — it can be more challenging for a prospective buyer to walk away from a sale. If a buyer chooses not to close at this late stage, they’re more likely to face consequences.

If the buyer has no contingencies left to void the contract, and [still] decides not to sign, the buyer is likely in default of the contract,” says Rodgers. “This could mean loss of deposit, but it could even go beyond that.”

However, if there’s still a contingency in the purchase and sale agreement that has not been met during escrow, that makes it easier for a buyer to walk away. Escrow can be canceled at any time during the transaction, up until all the contingencies written into the offer have been met. Timing is crucial during this phase: Buyers must pay attention to the contingency deadlines written into the purchase agreement if they hope to avoid penalties.

“The buyer and their Realtor must be aware of when their inspection, financing and appraisal deadlines are slated to expire, and act accordingly with the proper documentation to formally cancel,” says Jen Horner of Masters Utah Real Estate. “If the proper channels are followed and the buyer has not allowed any of their earnest funds to go nonrefundable, their earnest deposit would be returned back to them in full.”

Why might buyers back out?

Two of the main reasons why a buyer would back out of a home purchase are issues that come to light during a home inspection, and issues with their financing.

• Due to home-inspection findings: Often, the “nitty-gritty of the house is unknown to a buyer until a home inspection is done,” says Chase Michels of the Michels Group at Compass in Hinsdale, Illinois. As long as there’s an inspection contingency in place, “if any major issues come up during the inspection that the buyer was not made aware of during the homebuying process, they can walk away clean from the contract and will receive their earnest money back.” 
• Due to financing problems: It’s also possible that a potential homebuyer can back out of a purchase because they run into problems securing financing. This is more common at times when mortgages are expensive. Prospective buyers may not get approval for a mortgage or may fail to secure as much money as they had hoped. In some cases, buyers may fail to secure financing within the set time frame.

How often does it happen?

While it’s not overly common, real estate deals do fall through periodically. According to a survey from the National Association of Realtors, 5 percent of contracts from the last three months of 2024 were terminated before reaching closing.

Meanwhile, data from Redfin shows that about 40,000 home purchase agreements were canceled in December 2024, which amounts to about 16 percent of all homes that went under contract. That’s the highest December rate of cancellations on record, the company says.

Can sellers sue buyers for backing out?

The short answer is yes, a seller can hypothetically sue a buyer for backing out. But it depends heavily on the circumstances and reasons surrounding the contract termination. “If all the buyer’s legitimate deadlines have expired and the buyer is considered to be in default of the contract, the seller can elect to keep the earnest money as liquidated damages and agree to cancel the contract,” says Horner. “Or, the seller can elect to sue.”

Finding a new buyer

Having a backup offer waiting in the wings can soften the blow when a purchase deal falls through. A backup offer is one that’s negotiated in advance but is “on standby,” so to speak. It only becomes effective if the original deal falls through.

“Having a backup offer in place may help the home seller feel more at ease, knowing that they not only have one offer, but two,” says Horner. The backup buyer might step into first position automatically if the first deal falls apart, or be subject to further negotiation, depending on state law and how the backup offer is written.

Smart sellers keep their home as sale-ready as possible until all the contingencies are removed, in case even the backup deal falls through. “I’ve had a listing go through three buyers before it closed,” says Albert.

Relisting your home

If there is no backup buyer in place, the property will likely be relisted for sale. Relisted homes may be denoted as “back on the market,” sometimes abbreviated as BOM or BOMK.

Relisted homes can suffer from a stigma, even if the buyer’s decision to walk away wasn’t related to the home itself. But an experienced agent will know how to navigate this hurdle. “It’s the listing agent’s job to make it known to any potential buyers that the home being relisted was not due to any defects with the property,” says Michels.

Attracting a new buyer is all part of the process, says Horner. “All Realtors hope the deal will remain together until closing,” she says. “But cancellations do occur, and it is the Realtor’s job to consult with their sellers and be by their side through the ups and the downs of the home sale process.”