Can a Buyer Back Out of a Contract?

Key takeaways

• Buyers can back out if they’re within contract contingencies.
• Sellers usually keep the earnest money if buyers back out without cause.
• A strong contract helps protect you from legal and financial issues.

A question that rattles both sellers’ nerves and real estate professionals’ phones: What happens when a buyer backs out of a home sale? Every real estate transaction carries this tension, and knowing your rights and options is important for a successful sale. So whether you’re selling your family home in Portland, OR or a small rental property in Boston, MA, the below guide can help you successfully navigate any hiccups that may arise.

Valid reasons buyers can back out of a contract

Most purchase contracts include contingency clauses—legal safeguards that allow a buyer to withdraw without penalty if certain issues arise. The below are common reasons that buyers back out of a home sale:

• Home inspection: If a professional home inspection uncovers structural defects, mold, pest infestations, or safety hazards, the buyer can invoke the inspection contingency. They can negotiate for repairs or credits, or else walk away and get their earnest money back.
• Financing: Even with pre-approval, buyers might fail to secure a mortgage. If a financing contingency is included, they can cancel the contract and usually receive a full refund of their earnest money.
• Title issues: A title contingency flags title defects—liens, encumbrances, boundary disputes. If unresolved, the buyer can exit the deal. Most contracts legally allow backing out under this clause, and earnest money should be returned.

These contingencies—common instruments in modern contracts—answer the question: Can a buyer back out of a home sale if things go sideways? Legally speaking, yes—but only within the parameters set from the start.

 What happens when there’s no valid reason

Buyers who withdraw outside of valid contingencies may face serious consequences, such as loss of earnest money. Earnest money—usually 1‑3% of the sale price—is deposited to show good faith. If a buyer exits the deal without legal justification, the seller typically keeps the deposit as compensation. 

It is also possible for sellers to pursue legal remedies such as breach-of-contract claims or specific performance (forcing the buyer to proceed). While somewhat rare, lawsuits are possible—particularly in the face of demonstrable seller damages .

 What sellers can do when a buyer backs out of a contract

As noted above, if the buyer abandons the contract without valid grounds and the contingency deadlines have passed, sellers have several options. They can legally retain the earnest money or sue for legal damages or specific performance. However, it’s important to note that the complexity and cost of litigation often make this a last resort .

The most commonly pursued action by a seller after a buyer backs out of a sale is to put the home back on the market. This avoids extra legal fees, and most earnest money disputes are resolved by escrow providers or agents without court involvement .

Protecting yourself with a strong purchase agreement

When drafting a purchase agreement keep in mind that every contract is unique. Deadlines and clause language—like what defines a valid contingency or non‑refundable deposit—are everything. Always have legal counsel or a professional review your documents .

A knowledgeable agent can guide clause inclusion, contingency timing, and help navigate disputes (or litigation) efficiently. Their professional advice and negotiation can be pivotal .

Even when a buyer is within full rights to back out of a sale, often the best outcome is a negotiated exit, such as a mutual release with partial return of earnest money. These arrangements can preserve goodwill and avoid costly legal drama .

Seller FAQs: What to do when a buyer backs out

Can you sue a buyer for backing out of a home sale?

Yes. Sellers can sue for breach of contract or pursue specific performance, though it’s uncommon. Most disputes today focus on retaining earnest money or are settled via escrow 

What happens if a buyer backs out of a sale?

If a buyer backs out within a contingency period, they exit with a refund of earnest money.
If they back out without valid reasons or outside of deadlines, sellers may keep the deposit and could pursue legal remedies.

At what point is it too late to back out of buying a house?

Once all contingencies (inspection, financing, title) are removed and deadlines passed, it is typically too late—the buyer may forfeit their earnest money and be liable for breach of contract.

Who pays escrow fees if the buyer backs out?

Escrow fees are generally split unless otherwise negotiated. If the buyer breaches, many escrow providers require them to cover fees—but it depends on contract language .

Can a buyer cancel a contract on a house?

Yes—but only if they invoke a contractual contingency: inspection, financing, appraisal, title, insurance, or sale of the current home. Otherwise, cancellation risks deposit loss and legal exposure .