Seller Question: What happens if a buyer backs out?
/by Brian Huie on 3/25/2024
Depending on the contract terms, the seller may keep the buyer’s earnest money.
To protect the seller, and hopefully prevent the buyer from getting cold feet, earnest money is offered.
If the buyer backs out of the transaction, the seller is probably still needing to sell their home. A failed transaction may look risky to other buyers when the home returns to the market, which could drive down the sales price, and/or cause the home to sit on the market for an extended period of time. For this reason as your listing agent, I will advise you on what areas make an offer safer to accept. If something occurs that causes the buyer to back out, the terms of the purchase and sale agreement will determine what happens to the earnest money.
Here’s a couple of scenarios to illustrate what could happen in the event that a buyer backs out:
1. The buyer deposited 3% as earnest money. Their lender’s appraisal found several issues that the seller could not (or would not) have fixed. Without fixing those issues, the lender cannot approve the loan for this home. The buyer’s offer included a financing contingency, and the failed transaction was to no fault of the buyer. The buyer was able to get the earnest money back. The seller and listing agent decide whether or not to re-list the home.
2. The buyer deposited 3% earnest money. They also had a financing contingency. But, unlike buyer 1, their lender’s appraisal passed with no issues. A week before closing the buyer got scared because they heard the neighborhood had increased crime, and decided they couldn’t complete the purchase. Because the buyer backed out for reasons not included in the contingencies, the seller will receive the earnest money. The seller still deals with the difficulties of re-entering the market after a failed transaction, but the earnest money received hopefully makes this less difficult to handle.
As your listing agent, I will help you prepare your home for the market such that risks of not closing are minimized, we receive more and safer offers to compare, and that the process is as smooth as possible for you.
For more information on what we’ll consider when reviewing a buyer’s offer, click here.
