When is it Too Late to Back Out?

It was the home we always wanted…everything seemed to be perfect, then THIS happened! I know I signed a contract, but when is it TOO late to back out of buying a house? Buying a house is one of the largest financial investments most of us will ever make, and it’s scary, especially when something goes wrong, or plans change. I’ll be providing some guidance about when it is too late to back out of buying a house.

First, it is important to note that I am not an attorney and do not provide legal advice. I am a licensed Realtor® in Central Florida providing basic guidance for these difficult times that I’ve dealt with countless times over the years. It’s unfortunate when a buyer needs to back out of buying a house, but it happens, and when it happens, I’m there to provide guidance for these buyers and sometimes the first thing I’ll do is recommend a local attorney to help with legal advice. Now that we’ve got that legal stuff out of the way, let’s talk about some basic options for the rest of us.

When you enter into a real estate contract here in Central Florida, buyers typically put down escrow, or good faith monies. This is sort of a promise to the seller that you’re committed to buying their home and that you won’t walk away, with a few exceptions, or contingencies, provided by the contract. Contingencies are another way of saying “A way out”. There are many contingencies, but the most common contingencies that cause deals to fail are the inspection and financing contingencies. There are certainly others, but these are the most common issues that we deal with on a regular basis and the only ones I’ll be addressing today. Nobody signs a real estate contract with the plan to fail but knowing when you can back out is a good thing to know.

Next, it does matter WHY you want to back out of buying a house. Is it because you lost your job, or is it because you decided that you no longer like the location. Here in Central Florida, most of our contracts occur on what’s called the AS IS contract. This contract provides several deadlines, which provide the exact answer about when it is too late to back out of buying a house. There are certain times when it may be too late to back out for certain reasons. Let’s take a look at a couple of these reasons.

One of the most common deadlines is the Inspection Period. The inspection period section of the contract may give you up to 15 days to back out because of something you or your home inspector found during your home inspections. As such, if you find something you don’t like based on one of those inspections, you may have up to that deadline to back out. Know when this period ends. Your Realtor® should be addressing any concerns you have about the condition of your home BEFORE the end of the inspection period. By walking away AFTER the inspection period, your escrow monies could be at risk.

Another common deadline is the Loan Approval Period. This is the deadline by which your financing needs to be wrapped up. This is a biggie if you are borrowing money to make the home purchase. The Loan Approval deadline is the time by which your lender should be committed to providing any financing for your home. By now the lender has likely checked out your credit worthiness, ability to repay the loan, received an appraisal that supports the value of the home, worked with the title company to ensure clear title, and a whole lot more. In my opinion, this is the most important deadline of all and is usually expressed by days after the effective date, or the date you went under contract. Your Realtor® and lender should be WELL aware of EXACTLY then this deadline expires.

Walking away after this period could put your escrow monies at risk. However, things like the loss of a job or a significant interest rate hike BEFORE THE end of the Loan Approval period, both impacting your ability to qualify for a loan, could be a reason to walk away and get your escrow back.

Waiting until after the Loan Approval Deadline is a very risky endeavor if you have hopes to get your escrow money back. By now, the seller may have already moved out, perhaps they’re purchasing another home, so they’re now banking on you closing. As such, they may be reluctant to release your escrow funds without a fight. If they opt to make a claim against your escrow monies, it could be tied up for some time before someone else determines who gets that money.

It’s vitally important to pay attention to the deadlines. When someone on my team has a customer that goes under contract, we immediately note several deadlines and we play very close attention to them. If our BUYER wants to back out of buying a house, we’re quick to advise them of potential consequences based on their reasons and we’re sometimes recommending that they consult with an attorney. If we have a customer that is a SELLER, we’re noting these same deadlines and we’re usually expecting that the buyer will be abiding by those deadlines.

Years ago, I was confused by the many pages and sometimes confusing verbiage of the contract; however, today I remember to slow down and simply read the contract. Most of the items in there are actually spelled out plain English. Yes, there is plenty of legal jargon, some of which I don’t even try to explain, but most of it simply spells out when it is too late to back out of buying a house. In many cases, backing out too late is a simple matter of losing your escrow, but there may be circumstances when one party or the other may look to sue, so pay attention to those deadlines BEFORE you need them.

If it’s just a short time before closing and after your Loan Approval deadline and you simply decide that you simply don’t like the neighborhood or the floor plan and don’t want the home, don’t panic. Sometimes sellers are gracious and will return some or all of your escrow even if you clearly haven’t complied with the contract. Talk with your Realtor® about what options you may have, or even speak with an attorney to see if perhaps there is another way out.

Knowing when it is too late to back out of buying a house really depends on many factors, but I hope that the items I provided here are helpful. If you need legal advice, please consult a local real estate attorney. If you have other questions about real estate or are considering buying or selling, you can reach out to me directly.