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Canceling a Real Estate Contract: When Buyers or Sellers Can Walk Away
If you’re in escrow and wondering, “Can I back out?” the answer is… it depends. Below is a plain-English guide to when each side can cancel, what it may cost, and smart steps to protect yourself. (Examples reference California’s standard process; timelines and forms can vary by state.)
Can a seller cancel?
Short answer: only if the buyer defaults.
Buyers get a contingency period (commonly 17 days in CA unless negotiated otherwise) to complete inspections, appraisal, loan approval, HOA review, etc.
If a buyer misses a contractual deadline—for example, doesn’t remove contingencies on time—you can serve a Notice to Perform (typically 48 hours).
If the buyer cures within that window (e.g., removes contingencies), you continue with the contract.
If the buyer does not cure, you may cancel under the contract terms.
Takeaway: once you’ve accepted an offer, you’re generally committed unless the buyer fails to meet an obligation and you follow the contract’s notice procedure.
Can a buyer cancel?
Yes—but whether you risk your deposit depends on timing.
Before contingency removal: You can usually cancel for any reason (or no reason) within your contingency period. Your earnest money deposit (EMD) should be protected by those contingencies.
After contingency removal: If you’ve signed a formal contingency removal and then cancel, your EMD is at risk under the liquidated damages provision. You can still cancel, but you may forfeit the deposit.
Tip: Don’t remove contingencies until you’re fully satisfied with inspections, appraisal, loan, HOA docs, insurance quotes, and any other due diligence.
Top 3 reasons buyers back out
Inspections reveal issues and the parties can’t agree on repairs or credits.
Appraisal shortfall and no agreement on price gap coverage.
Financing falls through and the loan contingency is still in place.
Smart moves for sellers
Vet the buyer’s strength. Review pre-approval, proof of funds, and lender reputation before accepting.
Know the clock. Track contingency dates so you can issue a timely Notice to Perform if needed.
Stay professional. Difficult showings or multiple inspectors are not grounds to cancel—default is.
Smart moves for buyers
Use your full contingency period wisely. Order inspections early, confirm insurance availability and cost, and stay in close contact with your lender.
Be realistic about appraisal and rate risk. If values are tight, plan how you’ll handle a short appraisal.
Don’t sign off early. Only remove contingencies when you’re truly ready.
Disclaimer: This is general information, not legal advice. Contract rights and timelines vary by state and by what you negotiate. Always review your paperwork with your agent and, if needed, a real estate attorney.
Need help in Orange County? I’m Audra Lambert. I read lender letters like a hawk and keep timelines tight. If you’re buying or selling here, I’d love to help.
