After home inspection, we want out of the purchase. Can we get our earnest money back?

If your contract contains an inspection contingency and the applicable deadline hasn't passed, the seller should return your earnest money deposit.

Question

We found what we thought was the house of our dreams, but when we brought in a home inspector we found out that there were many, many more problems than we ever imagined. The house needs new a new electrical system, may have foundation problems, and the radon reading came in high. We don’t want to pay to have any further inspections done . . . we just want out of the contract. If we back out, will we get our earnest money back?

Answer

It’s very disappointing to find out that what you thought was your dream house is actually a potential nightmare. However, fortunately, this is the whole point of the home inspection. Most of the time, the purchase contract will allow you an “out” if, after completing your home inspection, you decide the house just isn’t right for you.

First, it’s important that you read your purchase contract carefully and determine when the deadline is for your home inspections to be complete. Assuming that you are still within that deadline, you should then read the contract to determine how you must go about telling the seller that you wish to back out of the contract.

If yours is like the typical home purchase contract, you must notify the seller in writing before the deadline. Some states will have forms specific to this issue that you can use to inform the seller. So long as you notify the seller of your intent prior to the deadline and by the method specified in the contract, you should get your earnest money back in full.

If you are past the inspection deadline, though, it is possible that your earnest money may not be refundable.

One of the best things about the home inspection contingency in a purchase contract is that, in most contracts, it is a highly subjective contingency. In other words, the buyer most likely has the option to back out of the contract prior to the inspection deadline for nearly any reason: the house smells funny, it turns out that there isn’t a sprinkler system, or the buyer just feels the house has bad juju.

This may not be the case with all purchase contracts, so read yours carefully. But if you are using a state-approved form for the purchase, you will nearly always be able to back out of the contract before the inspection deadline for a very wide range of reasons. After all, before putting in an offer, most buyers only see the house once or twice. The inspection contingency allows the buyer to be more circumspect and get more of a feel for the house before entirely committing to the tune of the earnest money.

Please note, though, that in tight “sellers’ markets,” the inspection contingency may be waived or a house may be sold “as-is.” If you’re reading this and haven’t yet entered into a purchase contract, take this as a lesson and be sure to read – and understand - the contract thoroughly. Some buyers are willing to forego an inspection contingency in order to get a house for a low price. That may or may not be the best option for you as a buyer, so be sure to know fully what you are getting into. Otherwise, your earnest money may be at risk if you back out because of an inspection item.

Talk to a Lawyer

Need a lawyer? Start here.

How it Works

  1. Briefly tell us about your case
  2. Provide your contact information
  3. Choose attorneys to contact you
FEATURED LISTINGS FROM NOLO
Swipe to view more
NEED PROFESSIONAL HELP ?

Talk to a Real Estate attorney.

How It Works

  1. Briefly tell us about your case
  2. Provide your contact information
  3. Choose attorneys to contact you