Can I back out of a purchase and get my deposit back?
If you get cold feet, you may be able to recoup your deposit
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It's not unheard of for a home buyer to back out of a deal after their offer has been accepted. A report released in June 2022 found that, nationally, 15 percent of sale agreements on existing homes were canceled that month after going under contract.
Breaking a deal could mean a buyer will lose their deposit money, however, there are some circumstances in which they can recoup their deposit. If you’re considering backing out of a deal, here’s what you need to know.
Contractual contingencies: The most common ways to get a deposit back
A buyer is most likely to get their deposit back if they can cite a contingency clause in the purchase contract that would allow them to void the deal. These clauses state that certain milestones must be met before a sale can close.
It’s not uncommon, especially in a hot housing market, for prospective buyers to waive some or all contingencies in order to make their offer more competitive. In this case, any waived contingencies could not be used to recoup a deposit.
Let’s look at some contingencies seen in purchase contracts:
1. Financing Contingency (aka Mortgage Contingency)
This clause stipulates that your offer is contingent on you securing financing for the house. These contingencies usually say that the buyer will have their deposit returned if a mortgage commitment is not received by a specified date. This stipulation does not allow a buyer to back out if they are not happy with the available financing options, only if their application for financing is not approved.
2. Inspection Contingency
A buyer also has a right to back out and get their deposit back if an inspection of the home finds that the property’s conditions are not acceptable. Typically, the buyer has 14 days from the time their offer is accepted to perform an inspection.
3. Other Contingencies
Sale contracts can include other, less common contingencies:
- Current Home Sale Contingency, which says that a sale is contingent on a buyer selling their current house by a certain date.
- Clear Title Contingency, which comes into play if a title search reveals unpaid taxes, a contractor’s lien, or any other type of claim against the property that cannot be resolved.
- Home Appraisal Contingency, which allows a buyer to back out if the home appraisal comes back with a home value less than the agreed upon purchase price.
Make sure you understand the contract and any contingencies in it and stay on top of any deadlines as you could lose your deposit if you try to void the contract after any deadlines have passed.
Once an offer is rescinded, the seller can dispute the disbursement of an deposit back to the buyer, possibly contesting the terms of the contingency or claiming the buyer didn’t notify them in a timely fashion. In the event of a dispute, the money will typically be kept in escrow until the matter is resolved.
Other scenarios to consider
Without any contingencies triggering a void of the contract, it is unlikely that a buyer will recoup their deposit. A seller, however, could back out of a deal themselves, in which case the deposit would be returned.
When moving through the purchase process, it is also important to keep in mind that loss of a deposit isn’t the only consequence that could come from getting cold feet. If a seller incurs additional costs as a result of a buyer backing out, they could sue.
For example, a seller is paying to have their house staged with furniture while it is on the market. Once a buyer enters a contract, the seller may move the staged furniture out to not incur any more costs. If the buyer then backs out of the deal, requiring the seller to move the furniture back in, the buyer could be sued for the additional moving costs, along with any legal fees the seller incurs.
However, always refer back to the terms of your contract, as those terms will dictate how a default is handled.
Contact Pederson Real Estate Law for expert counsel
If you need help terminating a real estate contract and recouping your deposit, contact Pederson Real Estate Law today for a free consultation.