Can I Cancel My Real Estate Purchase Contract? • The Mortgage Insider (2023)

Tuesday, September 28th, 2010 at 12:36 pm

Here’s is a recent reader question:

“I have been looking at a house and decided I wanted to look into buying the house. I met with my Realtor and we signed a contract. Long story short, we did a home inspection and there was a lot of things that were wrong with the place. I decided now is not the right time financially for me to buy this house. I know that I am not the first person to want out of a contract but my Realtor won’t help me get out of it. She just keeps telling me that I will be sued. Can you tell me the legal way for me to get out of this purchase contract.”

My answer:

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You are correct in that you are not the first to “want out” of a real estate contract. Needless to say, times are tough for agents now, so every deal counts and that maybe at the core of this problem. But in legal matters, you can not depend on the cooperation from the other side. Sure you could get lucky and have a seller “let you out” of the contract without a problem…but in this tough market, I would not depend on it.

I Want Out of My Purchase Contract…Not Enough

What home buyers need to know is that simply “wanting out” is not enough when it comes to contracts. You must have a legitimate reason for canceling a real estate contract. “I changed my mind” is not an acceptable legal reason.

Take the opposite position for a minute…it’s you selling the house. I contract to buy it…you hold it off the market for 2 months while I’m getting inspections, appraisals, and my money together. Then at the last minute, I tell you, “I changed my mind”…no legitimate reasons…just that I want out.

In a market that is falling, you must now put the house back on the market and will most likely have to lower the price to get another buyer. I cost you time and money. If there were not safeguards against this, many sellers would be harmed intentionally. For example, a home seller could contract with all the competing homes for sale in his surrounding area, leaving only his NOT under contract. Once his was sold, he could simply cancel all the other deals he tied up benefiting himself at the expense of the other sellers.

Legit Reasons For Canceling Purchase Contract

The good news for you….there are legitimate reasons for canceling a contract and they are outlined in the contract. Most state approved “Buy/Sell Real Estate Contract” has specific clauses allowing the buyer to cancel without damages or creating a cause of action. The contract in Colorado (the only one I am familiar with) allows for cancellation should the mortgage sought not be forthcoming, or the appraised value does not meet the sales price, or the inspection is unsatisfactory to name a few.

The exact mortgage clause reads like this:

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“Loan Commitment. If Buyer is to pay all or part of the Purchase Price by obtaining a new loan as specified in § 4b, this contract is conditional upon Buyer obtaining a written loan commitment. This condition shall be deemed waived unless Seller receives from Buyer, no later than Loan Commitment Deadline (§ 2c), written notice of Buyer’s inability to obtain such loan commitment. If Buyer so notifies Seller, this contract shall terminate. IF SELLER DOES NOT RECEIVE WRITTEN NOTICE TO TERMINATE AND BUYER DOES NOT CLOSE, BUYER SHALL BE IN DEFAULT.”

This paragraph outlines the proper way to cancel the contract IF denied for the loan or IF the loan commitment does NOT meet the terms outlined in the financing section of the contract. This means if you put in a loan amount and interest rate in the financing section, and the approval comes back with different terms…you can cancel the deal. One could say in preparation for signing the contract a wise move would be to put in a very low rate and very high loan amount, so as to give you terms that would most likely get changed for the worse on the way to approval. That way the purchaser could trigger this clause to kill the deal. Of course, if buyers were this proactive, they’d simply put in there own contingency clauses as you’ll learn in a minute.

Cancellation in a Colorado purchase contract is also provided for if the appraisal comes in below the sales price. Here’s that language…

“Other. Buyer shall have the sole option and election to terminate this contract if the Purchase Price exceeds the Property’s valuation determined by an appraiser engaged by________(buyer or seller). The contract shall terminate by Buyer giving Seller written notice of termination and either a copy of such appraisal or written notice from lender that confirms the Property’s valuation is less than the Purchase Price, received on or before Appraisal Deadline (§ 2c). If Seller does not receive such written notice of termination on or before Appraisal Deadline (§ 2c), Buyer waives any right to terminate under this subsection.”

As you can see, those are very specific reasons to cancel and they can not be used if you are not proactive, or get the financing with the terms you applied for or the appraisal comes in low.

The cancellation clause with the most latitude for a purchaser to use to “get out of the deal” is the inspection clause and it reads like this:


“Inspection Objection Deadline. Buyer shall have the right to have inspections of the physical condition of the Property and Inclusions, at Buyer’s expense. If the physical condition of the Property or Inclusions is unsatisfactory in Buyer’s subjective discretion, Buyer shall, on or before Inspection Objection Deadline (§ 2c):

  • (1) notify Seller in writing that this contract is terminated, or
  • (2) provide Seller with a written description of any unsatisfactory physical condition which Buyer requires Seller to correct (Notice to Correct).
  • If written notice is not received by Seller on or before Inspection Objection Deadline (§ 2c), the physical condition of the Property and Inclusions shall be deemed to be satisfactory to Buyer.”

    Notice in this “built in” cancellation clause all the buyer has to do is notify the seller in writing of his termination by the proscribed deadline to kill the contract. Not all states have this kind of verbiage in their approved real estate contracts, so read your contract carefully.

    There are other clauses one can use to cancel like disclosure of lead based paint, termites, or flood zones. So don’t think just because the three above won’t help…there are not other ways to cancel.

    Add Your Own Cancellation Clauses

    A buyer can go further and add what are known as “contingency clauses” to the contract like, “This contract is contingent on review and acceptance of buyer’s attorney”. It is wise to always add another contingency clauses to your contract, so you’ll never need to rely solely on the “built in” clauses.

    If cancellation is not done according to the contract, you could lose the earnest money you put down or worse, you could get sued for more.

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    Sadly, if your contract does not have a “buyer friendly” inspection clause like Colorado or you didn’t put in your own contingency clause, it’s time to get a lawyer. Have him/her review the contract and determine the best course of action and have him speak with the agent. Many legal aid offices will help in situations like this if money is a challenge.

    Lastly, reading this should remind you of the magnitude of the decision to sign a real estate purchase contract. It is not a step to be taken lightly and a mis-step can cost you dearly.

    Good Luck!

    Previous Post:« If I agree to pay a certain amount of costs and the actual costs are less, does the buyer keep the difference?

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    Tags: Contingency ClausePurchase ContractReal Estate

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    Can you cancel house purchase after exchange of contracts? ›

    You can pull out after exchange of contracts however there are financial penalties for doing so for the party that does. The costs include: Notice to complete legal fee of the other side's solicitor. Interest.

    Can you pull out of house purchase before exchange? ›

    Pulling out of a sale or purchase before contracts are exchanged is possible, although you are likely to be liable for some of the costs that you have incurred, such as payment for searches, legal fees and a survey.

    What happens if I pull out of a house purchase? ›

    A buyer can pull out of a house sale after contracts have been exchanged, but there are legal and financial consequences to this. If a buyer pulls out of a house sale after contracts have been exchanged, they will forfeit their deposit and may be liable for other costs incurred by the seller.

    When can you pull out of a house purchase? ›

    You can pull out of a house sale at any point up until the exchange of contracts. Once you have exchanged contracts, then you have entered into a legally binding contract that will mean you are subject to its terms.

    What happens if you change your mind about buying a house before closing? ›

    Backing out without a contingency

    Not only do you risk losing your earnest money, but the seller could possibly seek further legal action. You could be sued for what's called “specific performance,” in which the court forces the buyer to close on the home.

    Can a buyer cancel a purchase agreement? ›

    Cancellation of an Agreement to Sale

    However, having a valid reason for cancellation is a must. A buyer is well within his rights to cancel an Agreement to Sale for reasons as below. The project is inordinately delayed. Notwithstanding, there is always a penalty will be levied on cancellation of the agreement to sale.

    How do you back out of buying a house? ›

    Earnest money and deposits are held in an escrow account. Once you back out, those funds are released to the seller if you haven't performed them. However, if you get your inspections, appraisals, and financing within the agreed-upon date range and choose to back out, there are no penalties.

    What are the penalties for pulling out of a house sale after exchange? ›

    As a buyer, you have the most to lose by pulling out, because you will forfeit your entire deposit and may be liable to pay interest on the balance of completion funds. As such, you should never proceed to exchange if you have any doubt about completing the purchase.

    Can you pull out after offer accepted? ›

    A Yes, you can withdraw your offer. Until you exchange contracts you are free to change your mind about your offer without any financial penalty. However, to be fair to the people selling the property you should let them know as soon as possible.

    What costs am I liable for if I pull out of buying a house? ›

    If you pull out of the sale after the contracts are exchanged, you'll be breaking a legally-binding contract and will have to foot the bill for some hefty penalties; even if you're backing out for reasons beyond your control. You'll also lose any money you've spent on surveys, advisor fees, mortgage fees and so on.

    Do you have to pay estate agents if you pull out? ›

    A If you withdraw from a sale, it is normal to be charged to cover the costs – such as advertising – that an agent has already incurred. And it is also normal to have to pay some or all of the estate agent's commission but only if the contract you signed contained a “ready, willing and able purchaser” clause.

    How do you back out of a real estate deal? ›

    Buyer's remorse is not part of real estate. Once the buyer and seller have signed the purchase agreement and the conditions have been satisfied, both parties must abide by the contract. There is typically not much leeway to cancel a real estate purchase.

    When can you back out of mortgage before closing? ›

    If you are buying a home with a mortgage, you do not have a right to cancel the loan once the closing documents are signed. If you are refinancing a mortgage, you have until midnight of the third business day after the transaction to rescind (cancel) the mortgage contract.

    Can I cancel offer to purchase a house? ›

    The buyer can cancel an offer to purchase, but doing so will be extremely costly. The buyer may lose their deposit. The seller may claim damages.

    Can you back out of a contract after signing? ›

    The General Rule: Contracts Are Effective When Signed

    Unless a contract contains a specific rescission clause that grants the right for a party to cancel the contract within a certain amount of time, a party cannot back out of a contract once they have agreed and signed it.

    How long after you buy a house can you change your mind? ›

    You may use the form provided to you by your lender or a letter. You can't rescind just by calling or visiting the lender. Within 20 calendar days after your lender receives your notice of rescission, all money or property you paid as part of the mortgage transaction must be returned to you.

    What should you not do at a house closing? ›

    5 Things NOT to Do During the Closing Process

    How can I cancel a property purchase agreement? ›

    You can terminate the agreement by giving a notice to the buyer stating that you are no more interested to sell the property since he has not paid any advance amount towards the consideration of sale so far. Consult a local lawyer and take decision as per his further advise after seeing the agreement paper.

    How long does a buyer have to cancel a purchase? ›

    The Cooling-Off Rule gives you three days to cancel certain sales made at your home, workplace, or dormitory, or at a seller's temporary location, like a hotel or motel room, convention center, fairground, or restaurant. The Rule also applies when you invite a salesperson to make a presentation in your home.

    What if buyer cancels the property deal? ›

    If the buyer fails to complete the transaction, the seller may forfeit the token money, unless the parties have made a notarised agreement stating otherwise.

    Can you walk away from a real estate contract? ›

    Once the time limit has expired on the contingencies, you can still walk away from the house right up until closing, although you may lose your deposit. This is called liquidated damages. The seller could potentially sue you for specific performance, which means that you would be required to complete the contract.

    Who legally owns a property after exchange of contracts? ›

    Once you've exchanged contracts, you're legally bound to buy the property and can therefore say you are the new owner. However, even though, as we mentioned earlier, you're legally responsible for your new house after exchange, the seller still owns the house until completion.

    What if seller backs out of contract? ›

    However, in many cases, a home seller who reneges on a purchase contract can be sued for breach of contract. A judge could order the seller to sign over a deed and complete the sale anyway. “The buyer could sue for damages, but usually, they sue for the property,” Schorr says.

    Is house Exchange legally binding? ›

    As soon as contracts are exchanged, the transaction becomes legally binding. Before the exchange, there's no legal obligation to complete and it's possible for either party to withdraw from the deal without legal penalty. Once you exchange, you've formally committed to transfer legal ownership of the property.

    Can you back out after an offer? ›

    How long do you have to back out of an offer on a house? The answer varies by state if you're hoping to keep your money. In California, for instance, the contingency period is for a total of 17 days, after which it's extremely difficult to pull out without losing money.

    Can a buyer pull out at any time? ›

    While an offer may be formally agreed between buyer and seller, it is not legally binding on either party until contracts have been exchanged. However, because Exchange happens right at the end of the process, this means that they can change their mind and pull out of the sale at any time, for any reason.

    What is gazumping in real estate? ›

    Gazumping occurs when an agent or seller accepts an offer you make to buy a property at an agreed price but the property is sold to someone else. This usually happens when the vendor sells the property for a higher amount.

    Can you claim costs if seller pulls out? ›

    Unless you have exchanged contracts, you have no legal recourse to recoup your costs from the buyer or seller, as there is no formal contract in place until this point. However, even if your sale's fallen through and you're facing steep costs, all may not be lost. You may actually be able to recoup some of these costs.

    Can you break a contract with an estate agent? ›

    Regardless of the reasons, you are free to give your estate agents 28 days' notice, or less, depending on what your agreement states. There may have been fees incurred that you may be asked to pay, but then you are free to take your house off the market or switch to another agent.

    Can I cancel estate agent contract within 14 days? ›

    Agents have to give sellers 14 days in which they can change their mind, without penalty, about instructing them. The seller must be given clear notice, in writing, which states their right to cancel within the 14-day period.

    Is an estate agent contract legally binding? ›

    You must sign a legally binding contract with an estate agent if you use one to sell your home. You must stick to the terms of the contract or you could be taken to court. Estate agents must also treat buyers fairly. They must show any offers promptly and in writing to the person selling the house.

    Can a seller cancel a purchase agreement? ›

    Yes, a seller can back out of a contract under certain circumstances. But you must show that you've upheld the conditions in the purchase agreement or face consequences.

    How do I back out of a house before closing? ›

    Ways to Legally Get Out of Your Contract
    1. Prove That the Buyer Broke the Contract. ...
    2. Prove the Buyer Is Acting Fraudulently. ...
    3. New Home Contingency. ...
    4. Buyer Agrees to Cancel. ...
    5. Other Contingencies.

    Can a mortgage broker charge a cancellation fee? ›

    A cancellation fee may be charged by mortgage brokers for borrowers who apply for a loan, receive pre-approval or conditional approval, but choose not to proceed. The amount ranges from $1000 to the full commission fee.

    Can I change my mind after signing offer to purchase? ›

    An offer to purchase offer is a legally binding contract; once you sign it, you cannot easily change it.

    Can buyer withdraw his offer? ›

    The buyer may withdraw the offer they have made before contracts are exchanged. Until contracts are exchanged, the buyer is under no legal obligation to buy the home and does not have to pay for any of the costs that you as the seller may have incurred.

    What happens if you pull out of a sale after exchange of contracts? ›

    Can you pull out after contracts exchange? The first thing to say is that either party pulling out after exchange is extremely rare. At the point of exchange, both the buyer and seller are contractually committed to completing, so pulling out is a breach of contract and attracts financial penalties.

    Can anything go wrong after exchange of contracts? ›

    Exchange of contracts will usually take place very close to your completion date. This is because once you have exchanged contracts if the seller or buyer fails to complete on the set completion date, they will be liable for financial penalties.

    What happens if you don't complete after exchange of contracts? ›

    If you fail to complete after exchange of contracts, this means that you will be in breach of contract. Thereafter the seller has the option to revoke the contract as you will have been unsuccessful in serving a notice to complete.

    Do you own the house after exchange of contracts? ›

    Once contracts have been exchanged the buyer is legally bound to buy the property and the seller is legally bound to sell it. This means that if either party were to pull out, it would be considered a breach of contract and there would be significant financial penalties.

    Can mortgage offer be withdrawn after exchange? ›

    Lenders are within their rights to withdraw a mortgage offer at any time, up to and including when you exchange contracts, or even on the day of completion.

    How binding is contract exchange? ›

    As soon as contracts are exchanged, the transaction becomes legally binding. Before the exchange, there's no legal obligation to complete and it's possible for either party to withdraw from the deal without legal penalty. Once you exchange, you've formally committed to transfer legal ownership of the property.

    Can you change your mind before exchanging contracts? ›

    14 days is the absolute minimum cooling-off period that a seller must give you. Make sure you check the terms and conditions in case they've given you more time to change your mind - many choose to do so.

    What happens if buyer doesn't close by closing date? ›

    If the lender doesn't approve your loan by the closing date, then the purchase contract may expire. The seller might agree to push back the closing date to allow you more time to get your loan, but they don't have to. If your loan is not approved, the sale will fall through completely.

    What makes a notice to complete invalid? ›

    Under both the commercial and other standard conditions, a party cannot serve a valid notice to complete if it is not itself ready, willing and able to complete.

    Can you lose your mortgage deposit? ›

    At exchange of contracts both you and the seller are legally bound by the contract and the sale of the house has to go ahead. If you drop out, you are likely to lose your deposit.

    Can you pull out of house sale after signing contract? ›

    The simple answer to the question is that you can withdraw or reject an offer on a property at any time up to the exchange of contracts. After exchange of contracts you will have entered into a legally binding contract and you will be subject to the terms of that contract.

    At what point is a house sale legally binding? ›

    Upon Exchange of Contracts, a Completion date is inputted within the Contract and is legally binding on all parties. On this date, you are legally bound to sell the property and hand over the keys.

    How much do you pay when you exchange contracts on a house? ›

    How much deposit will I need? Normally, a 10% deposit to be paid on exchange of contracts. If you are buying and selling your solicitor can usually use your buyers deposit in connection with your purchase so you will not have to find anything.


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