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When Can A Home Buyer Back Out Of A Sale?

When Can A Home Buyer Back Out Of A Sale?

Only under certain circumstances came a home buyer back out of a sale. For the most part these instances are industry accepted and a normal part of the process when selling a residence. However, backing out of a sale of a home can have certain legal ramifications if the home buyer just suddenly decides that they don't want the house. Knowing when and under what conditions it is legally acceptable for a home buyer to back out on a sale is important knowledge for both buyers and sellers of real estate.

There are a few specific situations under which it is widely accepted for a home buyer to back out of a sale. The first relates to mortgage financing and qualifying based on income and debt and the second relates to the home inspection. Most home buyers are unable to pay cash for residences and therefore require a financial institution to back the purchase by providing a mortgage loan. To obtain the mortgage the buyer qualifies based on current income levels, length of employment and the debt to income ratio. If however a home buyer has a change in their financial situation it may then become unrealistic for them to obtain a mortgage under current terms. Suddenly losing a job or getting saddled with unexpected medical bills could negatively alter a home buyer's current financial situation making them unable to qualify for a mortgage. Another financial contingency would be that the home appraises for significantly higher than the loan amount or raises some sort of red flags. While less likely to occur this could also prevent a mortgage from being granted.

The other contingency which will often provide a legal basis for canceling a home purchase or backing out of a sale happens during the home inspection. The assumption for the home being purchased is that it is in perfect condition and must otherwise stated if that is not the case in the disclosure paperwork provided by the home seller. What that means is that the home seller is legally required to disclose any defects to the best of their knowledge which could adversely affect the property's value such as existing weather damage or broken appliances. In the case of fraud where the home seller should have known and disclosed certain damages or defects the home buyer may have legal recourse after the purchase. However, certain items such as a cracked foundation or a leaky roof may only be readily apparent during the home inspection and would provide cause for the prospective home buyer to back out of the sale. Even though this option is available, the home buyer may actually choose to still purchase the home but renegotiate a significantly lower purchase price saving them money.

There are additional means by which a home buyer can back out of the sale but they must be specified in writing during the initial negotiation process. Because it is a negotiation there is technically nothing that prevents the home buyer from making crazy recommendations and stipulating circumstances for why they can back out of the sale. But just as the buyer is able to add additional stipulations the home seller can choose to simply say no and not allow them in the contract. While these situations are rare it is available and could significantly complicate the home transaction. Outlandish or unreasonable stipulations may be uniformly rejected and raise significant red flags leading to an end to the negotiation.

When a home buyer is able to back out of a sale is dependent on numerous factors that must be legally agreed to by both parties or must be part of the normal home transaction process such as a clean home inspection and clean title. If you as a home buyer have certain concrete requirements which must be met for the sale of a home to proceed make sure it is in writing and agreed to by the selling party before completing the purchase. Much like most other situations in life, it doesn't hurt to ask as you might be surprised what you'll get. Be proactive and make sure your best interests are protected when looking to purchase your dream home.

Image by: Photo Dean