What To Do When Buyers Back Out At Closing

When a buyer backs out at closing, it can be stressful — but how you respond depends on why they backed out and what your contract says. Here’s what sellers should know:

Table of Contents

🔍 1. Understand Why the Buyer Backed Out

Common reasons include:

Financing fell through (e.g., denied mortgage at the last minute)
Cold feet or buyer’s remorse
Inspection or appraisal issues
Failure to sell their existing home
Title problems or legal disputes

📜 2. Review the Purchase Contract

Your contract (often a standard Arizona Residential Resale Real Estate Purchase Contract, if you’re in AZ) outlines:

Contingencies (financing, inspections, appraisal)
Deadlines for cancellation
Earnest money terms
Legal remedies for breach

If the buyer backs out after all contingencies are removed, it may be a breach of contract, entitling you to retain the earnest money or pursue legal action.

💰 3. Determine What Happens to Earnest Money

If the buyer cancels legitimately under a contingency, they may get the earnest money back.
If they default without cause, you may be entitled to keep the deposit as liquidated damages.
Escrow (title company) may require written consent from both parties to release funds.

⚖️ 4. Legal Options If Buyer Breaches

You may:

Keep the earnest money
Sue for specific performance (force the sale — rare and usually only when the home is unique)
Sue for damages (e.g., if you had to sell at a lower price later)

Talk to a real estate attorney before deciding. Litigation can be costly.

🏠 5. Relisting the Property

You can:

Relist immediately, if you’re not under dispute
Consider using the situation as leverage to improve terms with the next buyer (e.g., faster close)

✅ 6. Tips to Protect Yourself in Future Deals

Require pre-approval letters, not just prequalification.
Set clear deadlines for contingencies and enforce them.
Require nonrefundable earnest money after key milestones (optional but common in hot markets).
Work with a reputable agent and title company.

Craig Cherney is a trusted client advisor and a sought after real estate lawyer and expert witness who is hired by the nation’s top Real Estate Litigation Attorneys to help resolve their litigated real property matters. Craig has appeared as a testifying expert witness before judges and juries in California, Arizona, Nevada and other jurisdictions across the country. Craig Cherney, Esq. Expert Witness Real Estate. 480-399-2342. If you are litigating an easement case, Craig Cherney might be able to help you advance and win your case.