Can a Seller Back Out of a Real Estate Contract?

You may be ready to breathe a huge sigh of relief once you’ve found a home, had your offer accepted and signed on the dotted line. But is the house really yours — or can a seller back out of a contract?

The short answer is yes, a seller can cancel a contract — but only under particular circumstances. Even then, the seller will likely face consequences, as the laws around real estate contracts tend to favor the buyer over the seller.

When can a seller back out of a contract?

The rules determining when a seller can cancel a signed contract depend heavily on what’s in the contract. Most real estate contracts have contingencies, which are clauses that spell out the specific situations in which a buyer or seller is free to back out.

Fortunately, it isn’t typical for a buyer or seller to back out at the last second. Only about 6% of signed real estate contracts fell through in a given month in 2024, according to data from the National Association of Realtors. Additionally, that rate held steady over the previous year.

The most common reasons sellers cancel a contract

The two main avenues sellers use to cancel a contract legally are:

1. For reasons spelled out in the contract. The seller can back out for reasons written into the contract, including (but not limited to) contingencies.
2. The buyer is in breach of the contract. If the buyer is “failing to perform” — a legal term meaning that they’re not holding up their side of the contract — the seller can likely get out of the contract.

Can a seller back out of a contract to accept a higher offer?

In most cases the answer is no, as long as the contract has been signed.

When a buyer puts in an offer on the house and the seller accepts it, both parties sign a home purchase agreement. This legally binding contract sets out the sale price, closing date and other terms of the sale.

Between when the contract is signed and the closing date, the house is said to be “under contract,” and the seller is legally committed to the transaction. The only exception is if the contract has an attorney review clause, which is explained below.

7 reasons sellers can legally back out of a real estate contract

1. Having trouble finding a new home. Many contracts allow a seller to cancel the sale if they can’t find a new home or move before the closing date.
2. Using the attorney review clause. Some real estate contracts include — and some states require — an attorney review clause, which sets aside several days after the contract is signed for each party’s attorney to review the contract. If either side wishes to back out of the deal, they can do so within that period without penalty.
3. Not having a clear title to transfer. If a title search shows that the seller has outstanding liens, disputes or claims against the home, they won’t be able to sell it.
4. The buyer “fails to perform.” The contract will set out a schedule of deadlines that must be met during the escrow period (the period between the contract signing and closing). If the buyer is missing closing deadlines or failing to make scheduled deposits, for example, they may be found in breach of contract and the seller could get out of the sale without penalty.
5. The buyer’s contingencies allow it. Typically most of the contingencies written into a contract are there to protect a buyer’s interests, but in many cases they can still provide an “out” for the seller.
   For example, say a buyer has an inspection contingency that requires the seller to allow a home inspection. If the inspection reveals a major problem, the buyer might request that the seller foot the bill for repairs or lower the sale price. If the seller wants to get out of the contract, they can lean into the buyer’s contingency by declining to complete the repairs or lower the price.
6. Undesirable details that scare the buyer. The law requires a seller to disclose specific information about a home during the sale process, but a seller desperate to get out of a contract might decide to divulge even more to a buyer in the hopes that these undesirable details will scare them off. The only problem with this tactic is that, in some cases, a seller must disclose to all future buyers anything they have disclosed to a buyer in the past.
7. The buyer agrees to it. Sometimes a seller’s ticket out of an airtight agreement is simply asking the buyer to let them out of the contract. A buyer isn’t obligated to agree, but it doesn’t hurt to ask.

Consequences of backing out of a contract

The buyer can sue if a seller tries to back out of a contract. There are several avenues the buyer can pursue, depending on their goals, including:

• Trying to force the sale. If the buyer sues for “specific performance” and wins, the court can order the sale to continue and transfer the title to the buyer against the seller’s wishes.
• Trying to receive monetary compensation. If the buyer sues for damages, the court may force the seller to cover any costs the buyer paid out due to the ordeal — these could include legal fees, inspection and appraisal fees and storage or temporary housing costs.

The seller’s real estate agent or listing agent could also sue them, since they are often compensated by commission. If the deal falls through, they will have lost that commission.

Even if no one sues, the seller will have to return the buyer’s earnest money — often with interest.

What to do if a seller backs out of the contract

As a buyer, if something is going wrong with your purchase, don’t panic. Instead, gather information and consider your options.

The following steps can help you get things back on track or exit the situation with the least amount of financial loss:

• Make sure you have everything in writing. The real estate contract is the backbone of your deal with the seller and must be on paper. Courts won’t enforce verbal agreements to buy or sell real estate.
• Consult with a real estate attorney. The laws around contracts and real estate are deep and confusing waters to navigate on your own. The best thing to do is find a real estate attorney who can look over your contract line by line and help you understand your rights in the situation.
• Try to come to an agreement with the seller. Although a dispute over a broken contract can quickly turn into a battle that ends in court, it doesn’t have to. If you approach the seller and discuss the situation openly, you may be able to reach an agreement that saves everyone time and money.
• Exercise your right to sue. As mentioned above, you have the right to sue either for damages or to force the sale. However, enforcing a real estate contract in court is expensive and time-consuming, so you’ll need to carefully consider how hard you’re willing to fight.
• File a lis pendens. If you choose to file a lawsuit after meeting with your real estate attorney, you may find it helpful to record a lis pendens. This legal document notifies the public that you have filed a legal claim involving the home, making it less likely that anyone else would buy it. And, if they do, they’ll have to accept the court’s decision when your suit is settled — even if that means handing ownership over to you.