Can a Seller Back Out After Accepting an Offer?

Buying a home can be exciting, especially if the seller accepts your offer. But can a seller back out of the deal after accepting an offer?

The process of buying and selling a home is often filled with anticipation. Buyers meticulously search for the perfect property and carefully craft an offer. Conversely, sellers consider each offer that comes their way, weighing the terms. However, what happens if the seller accepts an offer only to have second thoughts? Can a seller back out of the deal?

Table of contents

1. Common Reasons Sellers May Want to Back Out
2. When Can a Seller Back Out of a Sales Agreement Legally
3. Consequences of Canceling a Sales Contract
4. What Should Sellers Avoid When Canceling a Sales Contract
5. Tips for Backing Out of a Sales Contract to Minimize Risks

If you’re selling a property, it’s not uncommon to second-guess your decision. In fact, many home sellers experience cold feet and wonder if they can still back out of a deal after they accept an offer. The short answer to this is YES—a seller can still cancel an agreement, but only under certain justifiable circumstances. 

It’s important to understand that withdrawing from a home purchase agreement can carry significant consequences. Legal implications are involved when you withdraw from the deal. 

Signing a sales agreement indicates you agree to sell your property based on its terms. A signed purchase agreement is a legal document that binds the buyer and the seller to the sale of the property. If you choose to cancel the contract, make sure to act quickly to avoid facing significant repercussions.

As the property seller, it’s crucial to know when you can back out of the contract legally. You should also understand the potential consequences and how to avoid them.

Common Reasons Sellers May Want to Back Out

There are several reasons why sellers may want to back out of a real estate deal. In general, backing out of a purchase contract is still possible as you legally abide by the terms of the agreement. A few common reasons why sellers back out of the sales contract include the following:

Higher Offers

Sellers may receive a higher offer from another buyer for the same property. For instance, the seller has already accepted the initial offer. Then another offer with better terms comes in. The prospect of getting more from the sale may tempt them to cancel the first deal. This often happens in competitive markets where multiple buyers are vying for limited housing inventory.

Emotional Attachment

Another common reason for canceling the sales is having a deep emotional attachment to the property the seller has called home for several years. Sometimes, a seller develops a particular attachment to the house that they find challenging to let go of. This emotional connection can lead to second thoughts and a desire to withdraw from the sales deal.

Failure to Find Another Home

Some sellers list their homes for sale, thinking they still have enough time to find a suitable replacement home. However, finding a home to move to within the timetable of the offer can be a bit challenging. More so in a highly competitive market with a scarce housing supply. If a seller doesn’t find one, canceling the sale may be the seller’s last resort.

Related: Find High-Income Properties for Maximum Returns

Problems with Home Inspection

In some cases, a home inspection uncovers specific issues that may need to be addressed first. For instance, the inspection report states that a new roof is necessary. Some sellers may decide to back out if they are unwilling or unable to address these repair issues. Sometimes, sellers just don’t want to negotiate repairs with the buyer and opt to cancel the sale instead.

Personal Circumstances

Unforeseen personal circumstances can arise. These include a job loss, divorce, or health issues, which may prompt a seller to back out of the deal. No matter how concrete your relocation plan is, these unexpected life events can cause major challenges. Sellers who encounter these situations may need to take their plan to sell the house in the back seat.

Market Changes or Low Appraisal

If the real estate market experiences a significant shift, sellers may reconsider selling their home and back out of the deal. These changes include a sudden drop in home prices or a decrease in demand. In addition, if the appraisal report comes out lower than the sales price, the buyer may not get approved for a loan. It may also prompt the seller to cancel the deal. 

Related: Will There Be a Real Estate Housing Market Correction in 2023?

Disagreement with Family

When multiple family members are involved in the decision-making process, conflicting opinions and preferences can arise. It makes it more challenging to proceed with the sale. Common issues include pricing, timing, or the emotional attachment to the home. These disagreements can create tension and uncertainty, leading sellers to back out of the sales agreement.

When Can a Seller Back Out of a Sales Agreement Legally

While it can be tricky to back out of a home sales agreement, it is possible to cancel the contract legally—without consequences. But before you withdraw from the agreement, it’s crucial to check with your state’s law first. In general, here are a few ways where you can walk out of a real estate deal without getting yourself into trouble:

1. Adding a Contingency Clause

A contingency clause is a contractual provision written into the purchase agreement that allows the seller to cancel the sale under certain circumstances. The clause should indicate the reasons for canceling the sales without facing penalties or legal consequences. It acts as a safeguard, providing a level of protection and flexibility during the transaction.

Here are a few examples of contingency clauses that you may add to the contract:

• Replacement Housing Contingencies. This clause allows the sellers to back out of the deal if they cannot find a replacement home within a specified period. It provides you with the flexibility to ensure you have a place to move to before finalizing the transaction.
• Appraisal Contingencies. If the appraised value comes out lower than the purchase price, the buyers may negotiate a price reduction. They may also request the seller to cover the difference. The seller has the right to terminate the contract if they don’t reach a mutual agreement.
• Repair-related Contingencies. Sellers can include a clause that permits them to back out if the buyer’s repair requests are considered excessive or unreasonable. If the buyer’s repair demands are beyond the seller’s financial capability, the seller may opt to terminate the agreement.

It’s best to work with a real estate attorney to ensure you add all the possible contingencies to your sales contract to protect your interest. Without adding such contingency clauses, the buyer can sue for damages. It can cause a more costly and stressful problem. 

2. Adding a Time Is of the Essence Provision

Time is of the essence provision is a contractual clause that emphasizes the importance of following a specific schedule for the home purchase transaction. This provision signifies that buyers should strictly comply with the agreed timeline. Failure to comply will force the seller to cancel the contract.

Here are a few examples of tasks that buyers must fulfill within a specific date:

• Conducting home inspections
• Getting a mortgage approval
• Paying the earnest money
• Paying the down payment
• Getting into a mutual agreement with the seller regarding repair issues after the results of the inspection come out

3. Backing Out During the Attorney’s Review Period

Most states require an attorney review period that usually takes three to five days. During this period, a real estate attorney reviews the sales agreement before it becomes legally binding. Since the contract is still under review and not yet legal, you or the buyer can still back out of the deal without consequences. 

4. Canceling the Deal Before the Contract Is Signed

Both parties need to sign the contract to make it legally binding. If you experience cold feet and want to turn your back on the deal, make sure to do it as soon as possible. Before you or the buyer signs the contract, you have to make a final decision. If you are not sure, it’s best to cancel the deal before you sign the agreement. 

5. Having a Mutual Agreement With the Buyer

If you have changed your mind and want to back out of the agreement due to unforeseen events or family/emotional issues, talk to the buyer about your predicament. In most cases, a proper conversation with the buyer works. It’s always good to ask—the buyer may empathize with your situation if they know what you are going through.

6. When There Is a Breach of Contract

Another good reason to back out without getting penalized is when the buyer breaches the contract. This happens when the buyer fails to meet certain deadlines, such as getting a home inspection or paying earnest money. If the buyer also fails to secure sufficient funding to finance the purchase, this allows you to cancel the contract.

7. When You Think the Transaction Is Fraudulent

You can cancel the deal if you notice signs of a scam or fraudulent activities. You need to be able to prove this to avoid any issues. If buyers force the seller to sell the property below market value, it can be considered a scam or a form of manipulation. Such situations are rare, but they allow you to legally back out of a deal if you encounter one.

Consequences of Canceling a Sales Contract

When the real estate attorney has reviewed the contract, and both parties signed it, it is generally considered legally binding. Typically, you can no longer cancel the agreement unless you have a justifiable reason to do so. Otherwise, you will face inevitable consequences.

The consequences of canceling the sales can vary depending on the specific terms of the contract, local laws, and the circumstances around the cancellation. Here are some potential repercussions that you may need to face:

Legal Implications

The buyer may sue for damages due to a breach of contract. If the court decides in favor of the buyer, the court may require you to pay the buyer monetary compensation. It covers the time and money the buyer spent during the negotiation process, such as inspection, appraisal, and legal fees.

In addition, if you signed a listing agreement with a listing agent, the agent may also take you to court. The listing agent may demand payment for damages caused by the failed sale, including lost commissions and marketing fees.

The buyer or listing agent may also sue you for specific performance, which will force the seller–or you–to fulfill the contractual obligation. 

Financial Losses

As mentioned, the breaching party (in this case, the seller) may be required to compensate the other party for any expenses incurred during the transaction. Additionally, the seller may forfeit the earnest money deposit and pay for other damages based on the demand of the buyer and the listing agent. This can be too costly and may cause monetary losses on your part.

Risk of Having a Lis Pendens

If the buyer sues you for a breach of contract, the buyer may also place a lis pendens on the property. Lis pendens is a legal notice that indicates a lawsuit involving the property is in progress. The purpose of a lis pendens is to alert potential buyers and other interested parties that there is a legal dispute concerning the property.

It can create significant obstacles for future sales or financing transactions. The presence of a lis pendens on your property’s title can make it challenging to sell the property or obtain new financing. This is because a lis pendens raises concerns and uncertainty for potential buyers or lenders. It serves as a public record of a legal dispute, discouraging future deals.

Reputation Damage

Canceling a sales contract can also have repercussions on your reputation within the real estate community. Agents, brokers, and other industry professionals may be hesitant to work with someone who has a history of canceling contracts. This can potentially impact future investment opportunities.

Risk of a Longer Process

In some cases, you and the buyer may be required to attend a mediation outside of court to resolve the issue. While this is a more favorable way to reach an agreement, it can also make the process longer. The good news is that mediation doesn’t involve hefty legal fees compared to a lawsuit.

What Should Sellers Avoid When Canceling a Sales Contract

When canceling a sales contract, sellers should be cautious to avoid certain pitfalls and potential negative consequences. Here are some key things you should avoid if you experience a change of heart and decide not to proceed with selling your home:

• Breaching contract terms. You should ensure that you don’t violate any terms of the sales contract when canceling the agreement. If you fail to follow the proper procedures or have no valid grounds for cancellation, you may face legal repercussions.
• Lack of communication. It is crucial for sellers to maintain open and transparent communication with the buyer throughout the cancellation process. If you don’t respond promptly to inquiries, it can result in misunderstandings, disputes, and potential legal actions.
• Withholding information or intentionally misrepresenting facts. Honesty and full disclosure are essential to maintain ethical and legal integrity. Do not lie about the property’s condition in the hopes of discouraging the buyer from proceeding with the purchase.
• Not seeking legal advice. It’s best to consult with a real estate attorney to understand your rights, obligations, and potential liabilities when canceling a sale. Professional legal guidance can help you navigate the process and minimize risks.
• Disregarding contract provisions. Review the contract provisions related to cancellation, contingencies, and dispute resolution before taking any steps. If you don’t comply with these provisions, you may face contractual disputes and possible legal consequences.

Related: 4 Types of Real Estate Contracts: A Beginner’s Guide

Tips for Backing Out of a Sales Contract to Minimize Risks

If you find yourself in a situation where you need to cancel the contract, ensure to proceed carefully to minimize risks. Here are some effective tips to consider:

• Review the contract. Review the sales contract thoroughly. Pay particular attention to any contingencies, cancellation provisions, and dispute resolution mechanisms outlined in the document.
• Communicate openly. Initiate an open and honest conversation with the buyer. Clearly explain your reasons for wanting to back out of the sale and express your willingness to work towards a mutually agreeable resolution.
• Seek legal advice. Consult a real estate attorney to understand the legal implications of canceling the sale. A legal professional can provide guidance on specific laws and contractual provisions, minimizing risks.
• Negotiate a resolution. Work with the buyer to negotiate a resolution that is fair and reasonable for both parties. Refund the earnest money and other expenses the buyer may have already spent during the initial phases of the transaction. 
• Document everything. Keep thorough records of all communication, negotiations, and agreements during the cancellation process. Having a paper trail is crucial in case any disputes or legal issues arise later.
• Comply with legal obligations. To avoid getting into legal trouble, make sure to comply with legal obligations as stated in the contract. Adhere to any notice periods, provide necessary reimbursements, and follow specific procedures in accordance with the law.
• Suggest another property to the buyer. You may also want to go the extra mile and help the buyer find a suitable replacement property. You can easily look for similar for-sale properties using Mashvisor’s Property Finder feature. 

What Is Mashvisor’s Property Finder Feature?

Property Finder is a proprietary tool of Mashvisor that allows users to find the best property that matches their criteria. To find a property for sale using this tool, you just need to input your desired location (city or neighborhood), budget, property type, and property size. The search results will show a list of properties for sale that meet your preferences. 

Does your buyer plan to use your property as an investment (either as a short term or long term rental)? If so, finding a replacement property using Mashvisor’s Property Finder is a great idea. It allows you to find the optimal property that best suits your buyer’s chosen investment strategy. 

On top of that, you can also determine which property will make the most profits using the profitability measures provided. You can get a general overview of the property’s potential monthly income, cap rate, occupancy rate, cash on cash return, and cash flow. 

Curious about how Property Finder works? Start a 7-day free trial with Mashvisor today to get a hands-on experience using this feature!

Bottom Line

So, can a seller back out of a real estate deal after accepting an offer? The answer is yes, but it won’t be easy. It’s important to understand the legal consequences that may arise depending on the provisions of your sales contract. Also, check with your local laws to ensure you don’t deliberately violate anything.

It’s advisable for sellers to consult with a real estate attorney to understand their rights and obligations before taking such a step. If you’re in this kind of situation where you have already accepted an offer, signed a contract, and had a change of heart, make sure to proceed with caution. 

As discussed, the best way to avoid serious repercussions is to include contingency clauses that allow you to cancel the sale under certain conditions. A typical sales contract contains provisions that are generally favorable to the buyers. As the seller, you have to include provisions that also allow you to cancel the deal.  

Work with a real estate lawyer to ensure such contingencies are written into the purchase agreement. These contingencies will serve as a form of protection in case you need to back out of the sales agreement for valid reasons.

On top of that, it’s best to keep a good relationship with your buyer. Help them find another property that is more or less similar to yours. It will help you maintain a good rapport with your buyer, which can be useful for future deals.

Find out how Mashvisor can help you! Schedule a demo to learn more about our real estate tools and services.