Withdrawing from a Purchase Agreement

After weeks of searching, you finally found your dream home and submitted an offer. But now that the excitement’s dying down, you’ve started to have second thoughts.

Can you simply withdraw the offer? And if so, how?

The answer depends on your unique situation and how far along you are in the process. Let’s examine the typical timeline for placing and potentially withdrawing a purchase offer.

The Purchase Offer

It all starts with a written offer to the seller that outlines the proposed terms for purchase (e.g., price, contingencies). The seller may ignore the offer and let it expire, counteroffer or agree to the terms. But until this agreement is signed by both parties it is not legally binding and you may withdraw your offer penalty-free.

Once the agreement is signed, however, and earnest money changes hands, backing out becomes more complicated. Earnest money is a good-faith deposit that demonstrates your commitment to the purchase. The amount, typically 1-10% of the purchase price, goes into escrow until closing, at which time it is applied to the down payment or closing costs.

Options for Withdrawal

When a purchase agreement includes contingencies, the sale can only move forward if those conditions are met. For example, a transaction may be contingent upon the home passing inspection or appraising at/above the purchase price. If so, evidence of structural damage or a low appraisal could provide valid grounds for withdrawal (or renegotiation).

Withdrawing for a reason not covered by contingencies, however, may result in the forfeit of earnest money. For example, a 5% deposit on a $400,000 home is $20,000 — a significant loss. You may also face legal action, which can be even more costly long-term, and could result in a court order to complete the purchase.

Ready to buy? Reach out to discuss your financing options.