What Happens If My Buyer Pulls Out Of The Sale Of My Home?

There are two types of offers that can me made on your home:

  • A “Firm” or “Subject-Free” Offer – means that the potential buyer, is willing to purchase your home as it is, no conditions involved.  With this type of offer the Buyer is legally obligated to purchase the house. If they don’t, they may lose their deposit.  The deposit is a way for the Buyer to show you that they are truly interested in purchasing the house. Generally, interested buyers make a 5% deposit, which will be applied against the overall purchase price. 

  • A “Conditional” Offer – means that certain conditions need to be met before the sale can be completed. These are included in most standard real estate contracts and permit the potential buyer to retract their offer under certain conditions. They are usually listed at the beginning of the contract, designed to avoid as many legal repercussions for both parties as possible. 

Financing – unfortunately, even if a buyer is pre-approved for financing, they may not be approved for the full amount of the house’s purchase price. If this type of contingency is included in a real estate contract, but the buyer can’t secure the necessary financing, they may be able to retain their deposit if and when they back out of the deal.

Home Inspection – after a home inspection is complete, the buyer will usually be given a grace period of a few days before they need to make a decision. If the inspection turned up with any problems with the property, meaning the terms of your contract haven’t been met, the buyer can demand that you make the necessary repairs or they can back out of the deal.

Appraisal – if an appraisal is lower than the expected amount, you can either drop your asking price to meet it, or the buyer can pay the difference. Once again, if the buyer is unsatisfied, they may be able to retract their offer without consequence.

Sale of Existing Home – if this contingency is part of the contract, it means that the buyer might only purchase the new home once the sale of their current home is complete. If the buyer doesn’t manage to sell their current home, they may be able to walk away from their new contract. However, both parties must agree to this type of deal, and hopefully this isn't a condition that you agreed to as it means you will be taking more of a risk for your own investment.

Its important to understand that these contingencies will come with a certain time limit, meaning the buyer is often able to back out of the deal, without consequence, before the contingencies expire. Once they do expire, the prospective buyer can still walk away, but subject to potentially hefty penalties

So if all the conditions have been met and the Buyer backs out, what will happen then?  

Whatever the reason for the buyer’s retracted offer, they may suffer heavy legal consequences if they don’t meet the terms of their contract.  In most cases, the buyer’s deposit will be the first thing they’ll lose. As the Seller, you will retain the deposit IF the contract stated that you would have the right once the potential buyer failed to meet the specific terms. However, if there was no such agreement in the contract, your mortgage broker will usually hold onto the deposit, and cannot legally discharge it to either the buyer or you until a court order has been mandated. 

Furthermore,  in many cases, the would-be buyer can be held liable for the difference in price after you manage to sell your home to someone else, if relisting is what you end up having to do.

So there are definitely significant consequencies if your Buyer backs out, as long as the conditions that are agreed to protect you as much as possible and that's obviously your realtor's responsibility.  As to what conditions are usually agreed upon, that depends on the market and the demand for your house.  In a multiple offer situation a Buyer will forgo as much as possible to make their offer look sweeter in the Seller's eyes and so there may be very few conditions, if any, included in the offer leaving the Buyer with little or no recourse if they were to pull out.  

- Justin