What happens if a buyer backs out of a real estate deal?

If a buyer backs out after signing a purchase agreement, the consequences depend on the terms of the contract, the reason for the buyer’s decision, and whether the buyer is exercising a valid contingency or other contractual right.

Can a Buyer Just Walk Away From a Home Purchase?

Buying a home is a major financial commitment, and sometimes circumstances change between the time you make an offer and the time you’re scheduled to close.

But once a purchase and sale agreement has been signed, the buyer generally can’t assume they can simply change their mind without consequences.

In Washington, the purchase agreement controls many of the rights and obligations of both parties. Washington Realtors® also notes that statewide purchase agreement forms contemplate termination of an agreement according to the applicable provisions and forms, rather than simply treating a failed transaction as an informal “rescission.”

That’s why understanding your contract before you sign it is so important.

What Happens to the Buyer’s Earnest Money?

One of the biggest questions when a buyer backs out is: What happens to the earnest money?

Earnest money is a deposit intended to demonstrate the buyer’s good-faith intention to complete the purchase.

If the buyer terminates the agreement under a valid contractual provision, the earnest money may be returned to the buyer, depending on the specific terms and circumstances.

If the buyer defaults without a legal or contractual excuse, however, the seller may have rights to the earnest money.

Washington law permits certain written agreements to provide for forfeiture of earnest money as the seller’s exclusive remedy when a buyer fails, without legal excuse, to complete the purchase. Under the statute, the amount covered by that provision may not exceed 5% of the purchase price.

That doesn’t mean every buyer who backs out automatically loses their deposit. The contract matters.

What If the Buyer Has a Contingency?

This is where things can get more complicated.

Purchase agreements may contain provisions that give a buyer specific rights to terminate the transaction under certain circumstances. Depending on the contract, these can involve matters such as financing, inspections, title, or other negotiated conditions.

If the buyer is exercising a contractual right correctly and within the required timeframe, backing out may be very different from simply refusing to close.

The key is to understand what the contingency says, when it expires, and what notice or documentation is required.

What If the Buyer and Seller Disagree About the Earnest Money?

Sometimes the buyer believes they are entitled to their earnest money back while the seller believes the buyer breached the agreement.

Washington law provides a process for handling disputed earnest money. If the holder receives a written demand for the funds, the holder must notify the other parties and follow statutory procedures. If the parties object to each other’s claims, the holder may be required to commence an interpleader action rather than simply deciding who gets the money.

In other words, a disagreement over earnest money doesn’t necessarily get resolved by the escrow holder simply picking a side.

What Should You Do If You’re Thinking About Backing Out?

If you’re a buyer considering walking away from a purchase, don’t wait until the last minute.

Start by reviewing your purchase agreement and identifying:

• Your remaining contingencies and deadlines

• Your termination rights

• Your earnest-money provisions

• Any notice requirements

• Your scheduled closing date

Then discuss your situation with your real estate professional and, when appropriate, a qualified attorney.

For sellers, the same principle applies. If your buyer wants to terminate, carefully review the agreement before assuming you automatically get the earnest money or that the transaction is over.

The Bottom Line

What happens if a buyer backs out of a real estate deal depends on the contract. A buyer exercising a valid contractual right may have a very different outcome from a buyer who simply decides not to close without a contractual or legal basis.

If you’re buying or selling a home in Bremerton, Tacoma, Port Orchard, Gig Harbor, or elsewhere in the PNW, understanding your purchase agreement can help you make informed decisions before a problem arises.

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This article provides general information and is not legal advice. Real estate contracts and individual circumstances vary. If you have a specific contractual dispute or legal question, consult a qualified Washington attorney.