backing out of escrow
Selling a Home

How Can a Seller Back Out of a Real Estate Transaction?

Backing out of escrow after a home sales contract has been signed is very risky for the seller. Learn about the challenges and risks here.

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The Risks of Backing Out of Escrow

A home sales transaction is a complex process that involves a lot of steps, but once the buyer and seller sign the contract, the transaction is considered “in escrow.” Once this step has been reached, funds are deposited into an account that is overseen by a third party and both the buyer and seller are firm on their positions.

But, situations do occur where the seller suddenly has second thoughts about selling their home. Whether due to an emotional attachment, a higher bid coming in at the last minute, or for a host of other reasons, sellers do occasionally want to try and back out of the real estate transaction. The questions are – can the seller back out of escrow, and if so, what risks do they face?

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The Legal Risks of Backing Out of a Signed Real Estate Contract

A signed real estate transaction contract is a legally binding document, so if a seller wants to back out after the contract is signed, they stand to risk being exposed to certain legal ramifications. This, of course, depends on the buyer. For instance, if the buyer sympathizes with the seller’s situation, they might choose to let the seller keep their house. On the other hand, the buyer can also choose to enforce the agreement. In such cases, a court can order the completion of the sale, despite the seller wanting to back out.

A seller is also at risk of being sued by their own listing agent for marketing expenses and even their lost commission. Although most agents will gladly accept their expenses being reimbursed and thus move on, this is never a guarantee that an agent won’t sue the seller for breaking what is considered an exclusive right to sell contract.

backing out of escrow

The Financial Risks of Breaching a Home Sales Contract

The good news is that in the majority of cases, sellers who choose to back out of selling their homes usually get to keep their homes. But in doing so, they are usually required to pay the buyer for any “inconveniences” they accrued as a result. These costs are in addition to returning the earnest money and they can include such things as:

  • The buyer’s temporary housing costs
  • The buyer’s inspection and survey fees
  • The buyer’s storage costs
  • Lost deposits
  • Legal costs
  • And more

When it comes to breaking a home sales contract, a seller’s best chance at avoiding legal problems is to simply pay the buyer what is needed to make them whole.

backing out of escrow

Does the Sales Contract Afford the Seller an Out?

Some home sales contracts feature stipulations that provide a contractual out for the seller if for some reason they decide not to sell. These stipulations usually include situations such as the seller not being able to find an adequate replacement home, or failing to gain required sales approval for the property from other family members.

Whatever the stipulations are, they need to be clearly specified in the sales contract. So, if you are thinking of stopping the sale of your home, it pays to read over your contract first to see if you have a legal contractual out before you notify the buyer of your decision.

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Carson is a real estate agent based out of Phoenix, Arizona. Carson loves data and market research, and how readily available it is in today's world. He is passionate about interpreting these insights to help his clients find and buy their perfect home. Carson got into the real estate industry because he loves the feeling of handing over the keys to a new home to happy clients. In his free time, he works on his backyard bonsai garden and spends time with his wife, Julia.