Buying a home is a major life milestone, but what happens when a buyer has second thoughts after signing the purchase agreement? In Virginia, as in many states, real estate contracts are legally binding documents. That means backing out without a valid reason can come with consequences. But there are exceptions. In this article, we’ll walk you through the legal options available to buyers who want to cancel a signed real estate contract, the possible penalties, and how Virginia law treats these situations.
Understanding the Basics of a Virginia Real Estate Contract
Once both the buyer and seller sign the contract, it becomes legally enforceable. The contract is generally fully enforceable even if the signatures are NOT notarized. In Virginia, this usually happens after an offer is made by the buyer, accepted by the seller, and both parties sign the written agreement. The contract will include key terms such as:
- Purchase price
- Contingencies (inspection, financing, appraisal, etc.)
- Closing date
- Earnest money deposit
If a buyer wants to walk away after this point, they must either rely on a valid contingency or be prepared for possible legal and financial consequences. The old saying is still true: “Breach is always an option.” For a buyer to be “cold feet” or “buyer’s remorse”, there are numerous options from honoring the contract and closing only to resell the property to just refusing to close, which in many cases will constitute a breach of the contract. Most, but not all, contracts in Virginia do provide for valid reasons to cancel the contract and if one of those reasons are available to the Buyer, then the decision not to close will not constitute a “breach”.
Common Contingencies That Allow Buyers to Cancel
1. Home Inspection Contingency
This allows buyers to have the home professionally inspected. If significant issues are found (like a faulty roof, mold, or foundational problems), the buyer can usually walk away or renegotiate the deal without losing their earnest money. Home Inspection Contingencies can be quite complex and be governed by a “PICA” (property inspection contingency addendum) and a “PICRA” (property inspection contingency removal addendum). Time limits are very important and a large part of all real estate litigation focuses on the PICRA.
2. Financing Contingency
If the buyer can’t obtain a mortgage within a specified timeframe, they can usually exit the contract penalty-free. Lenders can deny financing for many reasons, including low credit scores, job changes, or issues with the property itself. Many contracts in Virginia “open up” the lender underwriting of a Buyer’s loan to scrutiny by the Seller’s closing team. Basically, the Buyer waives rights of privacy and the lender is authorized to speak freely with the Seller’s agent on why a loan may not be approved. It is essential that the loan denial NOT be a result of any factors under the Buyer’s control or manipulated by the Buyer to serve as an exit strategy when a Buyer changes his/her mind about going to closing.
3. Appraisal Contingency
If the home is appraised for less than the contract price, the buyer may either renegotiate or cancel the agreement. Lenders won’t approve a loan above the appraised value unless the buyer covers the difference out-of-pocket.
4. Home Sale Contingency
This allows a buyer to make the purchase contingent on the sale of their current home. If they can’t sell their existing home within the specified period, they can terminate the deal. Such contingencies, while comforting to a Buyer, may make their offer less appealing to a Seller and less likely to become an “accepted” and binding contract.
Each of these must be explicitly written into the contract to be enforceable.
What Happens If There Are No Contingencies?
If the buyer tries to back out without an applicable contingency, several outcomes are possible:
- Forfeiture of Earnest Money: The seller may keep the buyer’s deposit as compensation for the failed deal.
- Legal Action: In rare cases, the seller may sue the buyer for specific performance (forcing them to go through with the purchase) or damages. But in most cases, a Seller who is the victim of a breach of contract will resell the property to Set the Damages, and if the Seller makes less money than they would have made on the contract that was broken, will be able to get an award from a judge against the Buyer for the amount of lost profits and legal fees expended.
The Role of Earnest Money
Earnest money is typically 1-3% of the purchase price and is held in escrow. If the buyer cancels for a reason allowed in the contract, they typically get their money back. If they cancel for a reason not covered, the seller can often keep it.
How to Properly Cancel a Real Estate Contract in Virginia
- Review the Contract: Look at all contingency clauses and deadlines.
- Act Within the Timelines: Each contingency has a specific deadline. Missing it may forfeit the protection it offers.
- Provide Notice in Writing: Communicate clearly, in writing, and according to the notice provisions in the contract.
- Work with Your Agent and Attorney: Professionals can help you understand your options and avoid costly mistakes.
Can a Buyer Back Out After a Home Inspection in Virginia?
Yes—if there is an inspection contingency in the contract. Buyers can typically walk away without penalty if the home inspection reveals significant defects, and the seller is unwilling or unable to make repairs or negotiate a solution.
Can a Buyer Back Out After the Appraisal?
Yes, if there’s an appraisal contingency. If the appraised value is lower than the purchase price and the buyer can’t or won’t cover the gap, they can cancel the contract without losing their earnest money. Even if there is no Appraisal Contingency in a contract, some loans, such as VA or FHA loans require this protection for the Buyer and the law may “trump” the contract language to the contrary.
What Happens If a Buyer Just Gets Cold Feet?
Unfortunately, cold feet alone isn’t a valid legal reason to break the contract. If there are no contingencies left to rely on, walking away can cost the buyer their earnest money—and potentially more if the seller sues for breach of contract.
Protecting Yourself Before Signing a Real Estate Contract
- Always include necessary contingencies that apply to your financial and personal situation.
- Get pre-approved for a mortgage before making an offer. But keep in mind that pre-qualification by your lender is not binding or 100% certain to mean that they will actually make your loan.
- Understand what you’re signing. Never rush into a contract without fully reading it.
- Consult a real estate attorney if you have any doubts or complexities.
When to Contact a Real Estate Attorney
If you’re considering backing out of a real estate contract, or you’re a seller dealing with a buyer who wants to cancel, legal counsel can be crucial. An experienced real estate attorney in Virginia can review the contract, explain your rights, and help you take the right steps.
At Pittman & Associates, we help buyers and sellers navigate real estate transactions with clarity and confidence. Whether you’re facing a contract dispute or planning a home purchase, we’re here to guide you every step of the way.
Final Thoughts
In Virginia, a buyer can back out of a real estate contract under certain conditions—usually through carefully written contingencies. Understanding your rights and obligations under the contract is critical before making any decisions. When in doubt, seek legal advice. Walking away without a plan could cost you far more than a deposit.