When purchasing a property, there are dozens of reasons the deal can fall through. If you decide to back out of an offer after it’s accepted, you need to understand there are consequences that affect your finances. Backing out of an accepted offer can cost you your earnest money deposit — an amount of money ranging between 1-10% of the purchase price of the home that’s given to the seller when an offer is made. However, there are certain circumstances where you could receive a refund of your earnest money.
How Can You Get An Earnest Money Refund?
The contract you sign when you make an offer is crucial. Many people who purchase homes without an agent go into contracts without having contingency clauses, which is a huge risk. Contingency clauses protect you from losing your earnest money deposit. If those clauses don’t exist in your contract or you’re pulling out of the offer for a reason not listed in the contingency clauses, the seller is legally allowed to keep your money.
It’s very important to work with a licensed real estate agent when you decide to purchase a home. Agents are trained to protect their clients from losing their earnest money deposits. When drafting legal contracts for an offer you want to make on a home or property, they add numerous escape routes to let you out of a real estate deal if you start to see legitimate red flags. However, contingency clauses aren’t meant to make it easy to back out of your offer. The reason must be implicitly listed in the contract to be able to back out and get your money back.
What Reasons Allow You to Back Out of an Offer?
It’s not fair to sellers to promise to buy their home and then back out of the deal if there isn’t a good reason. Accepting an offer means the seller pulls their property off of the market and makes it unavailable for others to buy with the understanding that you are going to purchase the property. That money is usually used as a sort of down-payment on the property or to help pay closing costs at settlement.
The only way you can get that money back is if your contract has a contingency clause. These clauses cover conditions, like:
- The buyer is unable to secure a mortgage for the property
- The home fails inspection or the seller won’t fix the home so it can pass inspection
- The buyer is unable to make the purchase in a timely manner
- The buyer can’t sell their previous home
- The home appraises for less than the sale amount
These contingencies occurring don’t necessarily mean you will back out of the deal, and in fact, many deals are made with these circumstances present, especially in today’s seller’s market. You don’t have to back out of the deal under these conditions, but it does give you an avenue to do so without monetary consequences if you so wish.
Backing Out of a Contract Without a Contingency Clause
If you made an earnest money deposit when you made an offer on a property and you back out without a protected reason, you’re definitely going to lose your money. Backing out of an offer causes the seller’s time invested in you to be wasted. The earnest money deposit was made to prove you’re a serious buyer, and you’re breaking that trust.
Entering into a contract can have serious consequences, but a licensed real estate agent can help you get through the process safely. If you’re ready to purchase a home, a Potempa Team member is here to help you navigate the buying process. Contact us today to get started.