Backing out of Escrow

Bowing Out of a Home Purchase Gracefully 

The goal of any real estate deal is for all parties to come away happy – whether it’s the home seller pleased with the profit, the buyer excited to start life in a new home or the real estate agents satisfied with the clients' success and their commission.

But what if, before that deal closes, it doesn’t feel right anymore? How do you, as the buyer back out of a transaction without angering all other parties? Whether the deal doesn’t seem quite as good as before or you just have cold feet, there are opportunities to back out. With the right contract contingencies and clear communication with your agent, it’s possible to emerge relatively unscathed – if you don’t wait too long.

Key to backing out when necessary – or avoiding getting into the wrong contact in the first place – is working with a real estate agent you trust to have your best interests in mind and expressing any reservations you have early on.

By maintaining good communication with your agent, you can avoid confusion about the home purchase or sale process before entering negotiations. A good Realtor knows the market, knows how to consult with their client and help them to understand the deal.  If you’re early in the housing search or preparing your home to sell and you have second thoughts, a frank discussion with your agent is best. Explain that you want to put things on hold, either for a specific period, or indefinitely. 

A good agent will be receptive to your feelings. While marketing a home or searching for properties requires an agent's time and money, agents generally don't want clients leaving the transaction with buyer’s remorse. At the end of the day, it’s always about the client. 

If you've already entered into a contract on a home, backing out of a deal can be trickier. Here's when killing a real estate deal will cause as little damage as possible:

• Before you’ve signed the contract.
• When the house appraises for less than the sale price.
• When the inspection reveals significant problems with the house.
• If the buyer’s house doesn’t sell in the contracted time period, the buyer or seller of the replacement home may terminate the contract.

Inspection and Appraisal Issues

Most home purchase contracts include the contingency that the buyer (and their lender) must be satisfied with the inspection and appraisal, the results of which could lead to further negotiations. In a seller’s market, it’s relatively common for a property to appraise for lower than the agreed-upon sale price due to bidding wars or a seller's elevated asking price. When that happens, the buyer and seller must come to an agreement on how to proceed: either the buyer pays more out of pocket or the seller agrees to come down in price. 

For example, the listed home was appraised for $25,000 less than the purchase price. The buyer is financing the deal and needs the seller to come down significantly on price, which the seller isn’t willing to do. With the seller unwilling to sell for the appraised value, and the buyer unwilling or unable to bring additional cash to the transaction the buyer walks away from the deal.

Similarly, a home inspection that reveals more issues than anticipated by the buyer and their agent when the offer was made could leave the buyer less than excited to call the place home. If the buyer is not comfortable taking on the repairs, or if the seller is unwilling to make repairs prior to closing, the buyer can walk away from the deal.

Contingency on the Sale of the Buyer’s Home

In some markets it is common for a real estate contract to guarantee the sale, contingent on the buyer’s ability to sell his or her current home. In a seller’s market, it may be more difficult for the seller to find a new home to purchase than it is for the buyer to sell their current home.

In these cases, there is a contingency on the sale of buyer’s home with the terms written out as agreeable by both parties. Typically used when the buyer must sell an existing home before purchasing another, this clause allows the seller to continue showing the home while the buyer's home is listed. If the seller receives a better offer, the original contract can be terminated at the time specified in the Contingency. This Contingency is a solid option for a seller worried about missing the better deal and keeps cost down for the buyer as they do not have to sell their existing home, move out and then find another home nor purchase a costly bridge loan to bridge the gap between two mortgages.

Early Exit

When backing out of a real estate deal, the worst thing you can do is wait. The second it feels wrong, you should let your agent know. The buyers have more options to terminate the deal throughout the contract period than the seller, as the contract typically includes easy exit points for the buyer if adequate financing is no longer available or costs become greater than the buyer is willing to take on. 

For the seller, backing out of a deal too late in the game can be considered breach of contract. The contract is binding, so the buyer may decide to sue the seller if they decide not to move forward. No one wants a real estate transaction to end in litigation. If your agent suggests that you consult a real estate attorney, then it is probably in your best interest to do so.

Condensed from Article
By Devon Thorsby, Editor, Real Estate US News and World Report 1/18/19
Tactfully B