#AskTheDanielMtz Ep. 57: Backing Out from that Home Purchase

Daniel Martinez
Aug 23, 2017 · 3 min read

It’s a week from the closing date on your new home. You’ve done a thorough walkthrough of the property, you’ve been granted a mortgage loan, signed the contract, and the sale is good to go. You get a call from your aunt and happen to tell her about the new home you’re buying. She asks about the area it’s in and it turns out the home just happens to be built right on the property line of a cemetery. Auntie flips out — you can’t buy that home! The spirits next door won’t let you live a good life! It seems silly, but she’s insistent so, unfortunately, you have to back out of closing.

What happens next? Can you back out of that contract?

First off, know this: whatever the reason for backing out of a sale, there may be some sort of repercussions. The home buying process involves multiple parties; the lender, the loan officer, the agents and lawyers all play a part in the closing process. For a buyer, this makes backing out of a sale especially tricky. Fortunately, buyers have a couple of safety nets available to them. First is the option period. This term generally lasts between 7 to 10 days. In this time frame of a home sale, a buyer would be doing a preliminary walkthrough of the property. If they change their mind within this time, they could theoretically back out of a sale without losing earnest money. The second line of defense is financial. In a case where the lender is not able to provide financing to their buyer within a set time span, usually within 21 days, the sale will cancel out any agreement and the buyer will recover their earnest money.

What if you’re past both grace periods and within days of closing? That adds another layer of red tape to the situation. In the end, no one can force a party to hold up their end of a contract. If a buyer decides to back out last minute, the contract usually states the seller will keep the earnest money. Backing out of a sale also creates the potential for lawsuits. A seller could sell a buyer for a breach of contract. Ultimately, the most impactful factor is time and effort lost by all parties. While the property was tied up in closing arrangements with this buyer, it could have been on the market and been sold to another serious buyer.

However, it is possible to protect yourself from the fallout of a terminated sale. Should you feel that there’s a chance you may have to rescind your offer on a home, communicate this with your agent immediately. The final agreement signed by both parties can have a clause written in to cover a buyer in this unlikely situation. Buyers should never feel trapped into purchasing a home they’re not sure about, but the transaction should be fair to all parties. Everyone hates wasting their time. Communication is crucial in every real estate transaction.

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