Real Estate Investing

A new agent in my office just told me that the first-time buyer she is working with called asking what would happen if he walked away from buying a home that has a binding contract in place.  Buyer’s remorse is a very real  emotional reaction that sometimes occurs after a big purchase is made.

Triggered by a number of things, buyers remorse is not uncommon.  Her buyer - who found a very affordable home in a good location - feels like he could get a better home for the same money somewhere else.  He wanted to know what it would cost him if he walked away from the binding contract.

Lose Your Earnest Money.  When a buyer simply walks away from a written contract for a reason outside of the contractual contingencies (typically inspection, financing, and appraisal), they are in default and would be unable to recover the earnest money deposit.  Ranging from $200 (seriously, I’ve seen people buy with $200 in earnest money … crazy, I know) to $5000, this money goes to the seller.   If there are valid reasons (maybe the heat/air unit isn’t operational and the seller won’t fix it), the earnest money can be recovered.  But for cold feet or buyer’s remorse, no.

Appraisal Fee or Appraisal Deposit.  If the lender has already had the home appraised on behalf of the buyer during the loan process, the buyer will have to pay that fee - $350 and up.

Loan Application.  As part of the mortgage process, lenders charge for the loan application and to pull the credit report.  Both of these could cost a couple hundred dollars.

Home Inspection.  Home inspectors are hired by the buyer and paid by the buyer at the time of inspection.  That money is not recoverable if the buyer walks away because the service has already been performed.  Our local inspectors charge from $250 to $500, depending on the size of the home.

Breach of Contract.  Here’s the biggie.  If a buyer walks away from a contract for no valid reason other than buyer’s remorse, said buyer may be taken to court for breach of contract.  Not only can they be sued and made to buy the home, but they may also end up paying legal fees on all sides.

Of course, all of these are up to the interpretation of the law in your state.  I would always advise a buyer to talk with an attorney about potential consequences before walking away from a contract to understand your legal rights and obligations.

Bonus Reads.  Bring My UA Kids Home has some buyer’s remorse due to the dirty condition of the newly purchased home.  (FREE TIP: Always ask for a home to be broom clean prior to closing.)

(Strong language alert.)  And Street Vein has some buyer’s remorse thanks to the flight path over the home. (Strong language alert.)

Photo from here.