With the economy in constant flux, it’s possible for the real estate market to swing from time to time. Sometimes, homes that were previously hundreds of thousands of dollars drop by tens of thousands or more in value, which an influence a buyer’s perspective on if they want to buy.
If you already signed an offer and submitted it, you might be upset if between then and the closing the home drops in value. The good news is that you usually can back out of the purchase, which could end up saving you money and preventing you from getting into a mortgage for a property that could end up upside down.
How long can you pull out of the home purchase?
Generally speaking, you’ll need to look at the purchase agreement but may be able to back out if a drop in the price is listed as a contingency in your contract. If not, you may lose some money on backing out, or, in rare cases, could end up in court.
Understand the contingency period on your purchase agreement
A contingency period includes a closing date and the time for contingencies. For example, if you have a contingency that you need inspections on the property, you could have a couple of weeks to get those done. Make sure you understand how long those contingency agreements are for, so you have some guidance on how long you have to back out.
If you back out of the purchase after making an offer, you may lose your earnest money if no contingency issues arise. The seller could, in some cases, choose to take you to court, too, because they’ve lost time and money from the sale falling through due to no fault of their own.
Get the right contingency agreement to protect your cash
To protect yourself when buying a home in a fluctuating market, make sure the home’s value is part of the contingency agreement. If the value drops suddenly, you want to know that you can walk away without risk to yourself or your finances, which is the goal of any good contract.