Real Estate

Can a Homeowner Legally Back Out of a Sales Contract?

Few things are as heartbreaking to home buyers as making an offer, having it accepted, and then finding out just weeks before closing that the seller has backed out. The time and effort put into securing the deal ends up being all for nothing. It is not good. In many cases, buyers are left wondering if sellers can legally back out without penalty.

The answer is both ‘yes’ and ‘no’. CityHome Collective, a well-known real estate brokerage in Salt Lake City, Utah, explains that the legal ramifications of backing out are covered by the language of the sales contract. This is why a good real estate broker goes over sales contracts with a fine-tooth comb before presenting them to buyers.

Contracts Establish the Rules

Sales contracts are legally binding documents signed by both buyers and sellers. More importantly, they establish the rules by which a transaction will be completed. Nearly every sales contract contains language stipulating the conditions under which either party can walk away.

What does this mean to the disappointed buyer? It means that the seller can legally back out if the reason for doing so is allowed by sales contract language. If the seller backs out for any other reason, the buyer may have legal recourse for enforcing the contract. Whether or not to pursue the legal options is a matter of buyer preference.

Reasons Sellers Back Out

CityHome Collective says there is a standard list of issues that routinely cause sellers to back out. They are almost always stipulated in the sales contract. At the top of the list is the buyer’s inability to obtain financing.

If you make an offer contingent on getting a mortgage, that contingency essentially gives the seller the right to change their mind if your mortgage doesn’t go through. They are under no obligation to wait around while you attempt to obtain financing in some other way.

Sellers may back out as a result of the buyer not having the money to make the promised down payment. Unfortunately, this sort of thing tends to occur at closing or within the final few days before the closing date. A buyer scrambles to come up with the money and simply runs out of time.

You should know that some sellers back out of their sales contracts because they get better offers. The only way to prevent this sort of thing is to include the appropriate language in a sales contract. Otherwise, all bets are off. Backing out to accept a better deal may be unethical, but sellers do it all the time.

Reasons Buyers Back Out

This post has dealt primarily with sellers and whether or not they can legally back out of a sales contract. But let us not forget about the buyers. They have legal rights, too. With the right language included in a sales contract, buyers have legitimate reasons to walk away.

A failed home inspection is the perfect illustration. The buyer may make an offer contingent on what the home inspection reveals. If that inspection reveals significant structural deficiencies, the buyer may choose to walk away. They may decide that they don’t want to put the money into making repairs.

Buyers sometimes back out when appraisals do not come in high enough. They might back out if they are concerned about title issues, restrictive covenants, and other issues. Again, the key is contract language. Both sellers and buyers can legally back out of a sales contract if their reasons for doing so are allowed under their contracts. That is it in a nutshell.