A home buyer may have several reasons to want to cancel a real estate contract -- family stresses, financial pressures or simply a change of heart. Many home buyers experience a multitude of emotions and scenarios after making an offer on a home. So if you're one of those persons feeling buyers remorse after signing the deal on a real estate transaction, you'll need the scoop on what to expect if you back out of your contract.
You may recall making a check out for earnest money when writing the offer. This earnest money is a good faith deposit set aside during a real estate transaction and held in an escrow account. It ensures that you're not only serious about purchasing the home, but also gives the seller a level of security while his home is off the market. If the sale goes through to closing, the amount is credited toward the purchase price, but will be forfeited if you back out of the real estate contract without legal reason.
The average amount of earnest money required for a real estate transaction can range from 2 percent to 3 percent of the purchase price. This amount is usually negotiable between buyer and seller, and is often used as a leveraging tool during initial communications. Most sellers shoot for an earnest money amount that is high enough to pose a significant loss to the buyer if he fails to close on the home during the specified time.
You may be able to get out of the contract with a full refund of your earnest money if you are within certain contract guidelines. A "contingency" is a clause that allows a buyer to back out of the deal penalty-free if certain criteria are not met during the transaction. A common contingency might include financing -- this form entitles a buyer to back out without harm if her financing falls though, while the inspection contingency safeguards against unsatisfactory defects found in the home.
If you've got much time into the real estate transaction, you may have spent a few extra dollars as well. How much you may incur in additional costs from backing out depends on the stage of the process you're in. Home inspection fees, the cost of an appraisal, title and escrow cancellation fees or moving expenses are just a few of the additional costs you might be responsible for, along with the loss of your earnest money.
Meribeth Phipps has been a real estate broker since 2000, specializing in residential new home sales. She holds a bachelor's degree in business and marketing.