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When The Buyer Gets Cold Feet

By Steve Matthews

Thursday, June 1st, 2017

The offer has been accepted and the mortgage has been approved. What happens when the buyer gets cold feet and wants to back out of the deal?

According to an online survey of 2,241 adults conducted for finance website Nerdwallet.com earlier this year, homebuyer’s remorse isn’t uncommon. Nearly half (49%) of homeowners who responded said they would do something differently if they had to go through the process again. Broken down by age group, 61% of Generation Xers (the mid-1960s through the 1970s) and 57% of millennial homeowners (born in the early 1980s through about 2004) indicated they had regrets. Many wished they had bought a bigger home or saved more money before buying.

Standard real estate contracts contain inspection and mortgage contingencies that allow buyers a limited time to back out of the contract and receive a refund of their deposit. They also spell out the terms of the deposit and where the money is held in escrow—with the buyers’ agent, the title company, an attorney or the builder.

But once all contingencies are satisfied, the contract “goes hard” and the buyers are locked in.

The real turning point in any real-estate deal is the buyers’ removal of their contingencies. This is a point of no return.

In the Philly market it isn’t uncommon for buyers to back out. But it is more likely that the buyer would negotiate and attempt to reach an amicable settlement with the seller for less than the entire deposit.

The amount of the deposit can determine what leverage the buyer or seller has in the transaction. A buyer who makes a $1,000 deposit might be willing to forego it. But substantial deposits tend to lock in the deal.

Here are a few things to consider if you might want to back out of your real-estate contract. Buyers and sellers should consult a qualified real estate attorney for advice.

• Craft carefully. Rather than having a mortgage contingency allowing you to obtain a mortgage “at prevailing rates,” specify an exact mortgage rate range. Or, consider making the contract contingent on the mortgage actually being funded by the lender. This extends the contingency all the way to the closing.

• Sharpen your negotiation skills. Even if you can’t back out legally, try to negotiate a reduction or return of the deposit with the seller. In a market where prices are rising and the homeowner can get a higher price for their home, there might be a chance to come to terms.

• Remember the realtor. Even if the seller lets the buyer off the hook, he may still be liable to the broker for the commission. Contracts state that the commission is due when the broker finds a ready, willing and able buyer. Many brokers will work with the seller in this situation, but it is an issue that needs to be addressed.