The only thing a buyer stands to lose by backing out of a deal is the money they submitted up front in the form of these two payments.
People always ask me, “Can homebuyers back out of a purchase agreement?”
Before I share the answer to this, allow me to further explain the content and purpose of a purchase agreement. Essentially, this 13-page piece of paperwork is the document which seals the buyer’s offer into a contract once the buyer and seller both sign it. It outlines all the agreed-upon details of the deal including terms, conditions, contingencies, purchase price, and more.
With that said, let’s get back to our original question: Once this document is signed, can the buyer back out? The short answer is yes, but doing so at the wrong time could cost them. This is because, at two points in the contract, the buyer will be expected to submit a payment to demonstrate their earnest intent to move forward with the deal. The amount of these payments, the due diligence payment, and the earnest money deposit, are both negotiable—as is true of most things in the contract. So to give you a better idea of how these payments would operate in a real deal, allow me to walk you through a quick hypothetical scenario.
Let’s say a buyer has submitted an offer on a popular $300,000 listing. This buyer has, per their purchase agreement, put down a $2,000 due diligence payment and a $3,000 earnest money deposit. Both the due diligence payment, which covers fees that arise in the due diligence period (such as the inspection and appraisal fees), and the earnest money deposit, which indicates the buyer’s sincere interest in the home, are paid to the seller; but the due diligence payment will be removed from the purchase price at closing, and the earnest money deposit will go toward the buyer’s down payment at that same point. That is unless the buyer backs out of the contract—which they can do with no legal ramifications. The only thing a buyer stands to lose by backing out of a deal is the money they submitted up front in the form of these two payments.
Hopefully, this has cleared things up. If you have any other questions or would like more information, feel free to give me a call or send me an email. I look forward to hearing from you soon.