The buyer can cancel under certain circumstances, but there are rules to the process.

Real estate transactions are based on the legal premise of “Good Faith.*” It’s assumed that the buyer intends to buy the property, and that the seller intends to sell the property. If a buyer makes an offer to purchase a particular home, in good faith he is telling the seller that he intends to buy this home.

If the buyer negotiates for a property, reaches an accepted offer and then cancels because he’s changed his mind, he is at risk of losing his initial deposit, which is usually between 2 and 3% of the purchase price. 

Although, we rarely see this happen, in a down market anything is possible. If a buyer halfheartedly enters into contract to buy a particular property, the home is off the market and not available for anyone else to purchase. When a buyer pulls out, it’s possible he has “damaged” the seller. As previously mentioned, we never actually see this happen, but it is possible and within the seller’s legal rights to question why the buyer is pulling out of the deal. In most transactions the seller wants to move on and not get tied up in legal issues, so he will let his buyer cancel.

When can a deal be canceled?

There are many reasons that allow a buyer to pull out of a deal, but they are all based on the belief that the buyer has been, and is acting in good faith. Depending on how the purchase agreement and counter offers were written, some reasons a buyer can cancel include:

Inspection/owner disclosures 

Found defects, neighborhood issues, seller unwilling to correct major issues

Loan

Not being able to get a loan based on the terms agreed to within the purchase agreement 

Appraisal

The home is not worth the purchase price the buyer has agreed to pay

Title 

There is a cloud on the title, which makes it hard or impossible to transfer ownership

*I am not a lawyer! Talk with your agent and lawyer to discuss your situation an options.

Last updated on January 24, 2012 by Blake Roberts