How to Back Out of a Purchase & Sales Agreement Without Losing the Deposit on a Home

A deposit on a home is also called earnest money.

Even the most enthusiastic home-buyer can change his mind about a purchase. A beautiful, newly built and modern home can hide many secrets only a house inspection can reveal. To ensure that you are able to break a real estate contract without losing your deposit, you need to take a detailed look at the contract before signing it and act quickly once you change your mind.


Step 1

Learn the difference between the deposit and down payment. The deposit demonstrates your earnest interest in the purchase, and is therefore also called earnest money. The down payment is part of the payment for the home. The deposit is usually smaller than the down payment and becomes a part of the down payment if you don't back out of the contract.


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Step 2

Research state laws to learn when they allow you to back out of a real estate contract. Sometimes a lender requires specific repairs to the home in order to approve the loan. Many states allow you to cancel a real estate contract if the estimated cost of these repairs exceeds a certain amount. There are also various state laws allowing buyers to back out of the contract and get the deposit back under specific circumstances, such as a seller's fraud or misrepresentation.


Step 3

Study the contract closely to make sure that you have the option of backing out and that you can get your deposit back. Some contracts will allow you to cancel the transaction, but only at the cost of losing your deposit.

Step 4

Read the limitations and terms for backing out. For example, many contracts allow you to back out if you can't get a mortgage, but if you did not apply in time you might have violated the contract terms.


Step 5

Pay an option fee if you want additional protection. The option fee allows you to cancel the transaction for any reason within a certain time period. Not all real estate contracts provide this option. Keep in mind that the option fee itself is usually nonrefundable.


Step 6

Give the deposit to an escrow holder, not to the seller. An escrow holder is a neutral third party safeguarding funds and documents until a transaction is complete. In a real estate transaction, the escrow holder handles the closing of the deal.


Step 7

Notify the seller that you want to dissolve the contract. The terms for backing out of the transaction are usually specified in the contract, so make sure you officially notify the seller as required. Consult your real estate agent or lawyer for guidance.

Step 8

Seek the help of a real estate attorney if you cancel the contract but the seller disputes your right to get the deposit back.


Buying a home is one of the most complex and important purchases you'll ever make. Unless you are very familiar with real estate transactions, make sure to hire a real estate agent, a real estate lawyer, or both.

Some real estate contracts require a seller to pay for needed repairs over a certain amount. If you are set on a certain home, this could be a better option than backing out of the purchase, depending on the circumstances. However, it's always best to sign a contract that also allows you to back out and get your deposit back, since you might want to cancel for reasons other than the home's condition.



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