There are a bunch of ways for a buyer to get out of their contract if you get cold feet. But failing to show up at the scheduled closing is not one of them.
It’s just wrong not to notify the seller, the closing attorney, the seller’s agent and yours that you don’t intend to go through with the sale. Ask yourself: How would you like to be on the other end of the transaction?
More importantly, you could open yourself up to lawsuits if you go into hiding on settlement day. The seller might ask the court to compel you to live up to the agreement, a concept known as “specific performance.” And your agent could demand that you pay their rightfully earned commission.
At a minimum, you will probably be asked to pay the seller’s and the agent’s expenses, which could be significant. Even so, you may decide that’s better than buying a house you’ve changed your mind about.
Fortunately, as Redfin CEO Glenn Kelman said on CNBC recently, “There are all sorts of ways to get out of a deal if you don’t want to do it.”
Follow the Fine Print
Maybe you lost your job, failed to secure financing or couldn’t sell your current house. Or perhaps the home inspection turns up stuff that turns you off, or the seller doesn’t uphold their end of the bargain.
Any of these can be used to terminate a purchase agreement, but they all come with restrictions. It all comes down to the fine print.
At this point, I should note: I am not an attorney, nor am I a real estate professional. None of what follows should be taken as legal advice; it is based solely on my experience reporting on real estate for more than half a century. Before taking any steps to end a contract, talk to your agent and seek legal advice.
Use the contract as your road map, advises Luke Babich, CEO of Clever Real Estate, an agent-matching service. The purchase agreement will spell out all the contingencies, conditions and deadlines that have to be met. For example, you might have to apply for financing within a certain period or have the home inspection completed within so many days.
If you want out and the purchase is dependent on selling your current residence, simply stop trying to sell it. Or delay applying for a mortgage, thereby missing the deadline and voiding the contract. You might have to give up your deposit, though.
If you’ve already been approved for a loan, you can still sink the deal by doing something that will adversely affect your credit score, which your lender will check again just before closing. If something new appears on the report – a recent big-ticket purchase, say, like a car – the lender could deny funding.
But rather than spending money to scuttle the deal, consider applying for several new, high-limit credit cards. You don’t have to use them. But if, all of a sudden, you have access to tens of thousands in available credit, it may make your lender think twice about lending you money.
Use the Home Inspection
Losing your job will affect your ability to repay a loan, too, though obviously you don’t want to quit just to sabotage a sales contract. But your lender may back out if you change jobs – especially if you go into a completely different field.
A better way to scrap a sale is to use the home inspection – maybe even before it takes place. Most contracts set a deadline for completing the inspection. If the date hasn’t passed, you can notify the seller in writing that you’ve changed your mind, and likely walk away with your deposit intact. You also can walk if the deadline has passed, but you may have to forfeit your money. Of course, you can take your time ordering the inspection, thus missing the deadline and voiding the deal, but again, you are putting your deposit in jeopardy.
Once the inspector has filed a report, you still have a few avenues. Hopefully, nothing major turns up. But if it does – say the roof must be replaced, or lead paint was found – you can use that as the reason for changing your mind.
Even if the inspector doesn’t find much to complain about, you can use the report to back out. The contract likely calls for a “satisfactory” inspection, but it doesn’t have to be acceptable to the seller – just you. You are not required to turn over the report to the seller, either.
Another way to use the report is to demand that the seller repair everything that’s noted, even the little stuff like a broken switch plate or a sticky doorknob. If the seller balks, you are out of the deal. If they agree, set a short time frame in which the work must be done. If the seller doesn’t move fast enough, you’re gone.
A low appraisal is another way out: If the appraisal doesn’t measure up, you will need a larger down payment, which, of course, you don’t have. Or use your review of the homeowner’s association documents as your exit strategy. You don’t need a reason – only that you’ve read the rules, and you don’t like them.
Lew Sichelman has been covering real estate for more than 50 years. He is a regular contributor to numerous shelter magazines and housing and housing-finance industry publications. Readers can contact him at firstname.lastname@example.org.