Can a buyer back out of a real estate purchase without penalty?

On Behalf of | Mar 10, 2023 | Real Estate

Selling real property requires careful planning. As the real estate market has been so volatile recently, sellers generally need to have a plan in place so that they know that they’ll have somewhere to live after listing their property. They may have to invest in moving and cleaning services, and there could potentially be an overlap of several weeks or even more than a month during which they’ll have to cover expenses both at their new home and at the property they are about to sell.

Absorbing those expenses in the short term could lead to a very profitable real estate transaction. However, the possibility exists for a buyer to back out of the transaction at the last moment, leading to major complications for the seller. Are there any consequences that can be imposed if a buyer cancels a closing after having an offer accepted by the seller?

Earnest money could be at risk

Technically, buyers could lose thousands of dollars if they try to walk away from a real estate transaction without appropriate justification and the proper contractual protections in place. A contingency is a clause in a contract that gives the buyer a justification for canceling a closing. Buyers may include contingencies that take effect if they can’t get financing or if there are issues that turn up during the inspection that the seller did not previously disclose.

Some buyers will try to make their offers more attractive to sellers by not including contingencies in their offers. Whether or not there is an applicable contingency will determine whether the sellers have a viable claim to retain the earnest money. If there are no contingencies that apply to the situation, then the seller can potentially retain some or all of the buyer’s earnest money as compensation for the delay and expense resulting from the canceled transaction.

Real estate disputes can quickly become messy

Earnest money can currently represent a substantial portion of someone’s down payment, as lenders have long since done away with the standard 20% down payment model. For prospective buyers, losing that earnest money might be a major setback in the purchase process, so they may do their best to avoid such a loss.

For sellers, earnest money may realistically be the only way to recoup the costs stemming from a closing that falls through. Learning more about the consequences that may apply during challenging real estate transactions can help those who are trying to sell real property to better protect themselves.