How to handle a buyer backing out of your home sale

Written by Samantha SheltonNMLS 1647301Updated October 2026

A buyer walking away is common enough to plan for rather than panic over: REALTORS® reported that 6% of contracts were terminated in the last three months, and another 12% settled late, according to the National Association of REALTORS®’ REALTORS® Confidence Index snapshot released August 11, 2026.¹ Whether you keep the earnest money comes down to a single question: did a live contingency give the buyer the right to cancel?

Homeowner on her porch beside a blank yard sign after a buyer backing out of the home sale

If an inspection, appraisal, financing or home-sale contingency was still open and the buyer canceled in writing before its deadline, the deposit goes back to them and you relist. If every contingency had already been satisfied or waived and the buyer simply changed their mind, that’s a breach, and the deposit is normally yours. Though in Michigan the broker holding it can’t just hand it over on your say-so.

Learn how to handle a buyer backing out, including what to do in the first 72 hours, who actually keeps the earnest money, and how to vet the next buyer’s financing.

Key takeaways:

Terminations are routine, not a verdict on your house: Agents reported 6% of contracts terminated over the last three months, flat from 6% a month earlier and 6% a year earlier, with a separate 12% settling late.
Waived contingencies are what turn a walk-away into a breach: 16% of buyers waived the inspection contingency and 21% waived the appraisal contingency in the latest survey month, and those are the buyers with no exit ramp.
Relist first, argue second: Contracts that do close typically close in 30 days, so momentum is worth more than a deposit fight, and Michigan allows 6 years to bring a breach-of-contract claim, so nothing forces you to settle the deposit this week.

Why do buyers back out of a home sale?

Most buyers back out because a contingency gave them permission to, not because they were reckless. A purchase agreement is a set of conditions with dates attached, and each one is a door the buyer can walk through until it shuts. Which door yours used tells you what happens next.

Inspection findings: The report surfaces a roof, foundation, water, septic or electrical problem the buyer won’t absorb. This is the exit most likely to follow you to the next buyer.
A low appraisal: On a financed purchase, Fannie Mae instructs lenders to use the lower of the sales price or the current appraised value when setting the loan-to-value ratio, so a low number shrinks the loan, not the price. Agents reported 6% of contracts delayed by appraisal issues in the latest survey; see NAR data on how often contracts fall through.
Financing falls apart: The approval was conditional and something changed, a job, a credit pull, a new car loan, an undocumented deposit. A preapproval letter is not a loan commitment, and the gap between the two is where deals die.
Their own home didn’t sell: A home-sale contingency makes your closing depend on a transaction you can’t see. Our guide to home sale contingencies covers how to write one that doesn’t leave you exposed.
Cold feet or a life change: Divorce, a transfer, a family emergency, or plain second thoughts. If the contingencies are gone, this is where the deposit is genuinely at risk for the buyer.

The first two produce information you now own and will have to deal with again. The other three are about the buyer, not the house. Sorting your fall-through into the right bucket on day one shapes every decision that follows. See contingencies in home offers for the full menu of clauses that can end a deal.

What should you do in the first 72 hours?

Get the cancellation in writing, then confirm which contingencies were still live. Work the list in order, and resist the urge to negotiate before you know where you stand.

Get written notice, not a phone call. Verbal cancellations aren’t cancellations. Ask for the signed termination notice and the specific contingency being invoked. If they claim an inspection issue, ask for the report; if financing, ask for the lender’s denial letter.
Re-read the purchase agreement with a calendar open. Write each contingency deadline next to the date notice arrived. A buyer who canceled three days after the inspection deadline expired is in a very different position than one who canceled the morning of.
Notify your agent and the escrow holder the same day. The deposit doesn’t move on its own, and whoever is holding it needs the termination documented in the file.
Separate the deposit from the listing. The deposit is a legal question with a long clock; the listing is a market question with a short one. Don’t let the first one stall the second.
Document the property’s condition. If the inspection turned up a real defect, get your own inspection or a contractor’s estimate now, while you still control the narrative.

Skipping step one is the most expensive mistake sellers make here. It’s on our list of common seller mistakes to avoid.

Who keeps the earnest money when a buyer walks?

It depends on which contingency was open the day the buyer gave notice. Michigan sets no minimum earnest money amount, the figure is whatever your purchase agreement names, but the contract’s deadlines, not the dollar amount, decide who ends up with it.

Contingency	The deadline that matters	Who keeps the deposit	Your realistic option
Inspection	The inspection and response deadline in the contract	Buyer, if they canceled in writing on time	Repair, credit, or relist with the finding disclosed
Appraisal	The appraisal contingency deadline	Buyer, if value came in low and they canceled on time	Reduce to appraised value, ask the buyer to cover the gap, or relist
Financing	The loan approval or commitment date	Buyer, if denied and they gave notice on time	Request the denial letter, then go back to market
Home sale	The date the buyer’s home had to be under contract or closed	Buyer, if their sale failed and they canceled on time	Keep marketing and take backup offers from day one
Title or survey	The objection deadline after the commitment is delivered	Buyer, if the defect isn’t cured	Cure the defect, then re-market
All contingencies satisfied or waived	None left	Usually you, but release takes mutual sign-off or a court order	Keep the deposit if the buyer signs off, and relist either way

Notice the pattern in the third column: being right doesn’t put the money in your account. Escrow holders release disputed funds when both parties sign a mutual release or a court decides, which is why the deposit conversation should never delay the relisting conversation. Our explainer on earnest money deposits covers how the funds are held and released.

Can you sue a buyer who backs out?

Yes, but the math usually argues against it.² A seller whose buyer breached a fully unconditional contract can generally sue for damages or, less commonly, ask a court to order specific performance. Both are real remedies, both are slow, and a pending claim over the property is exactly the cloud that scares off your next buyer.

Run the honest comparison first. Litigation costs money now against a recovery you might collect in a year or more, and your actual damages are usually smaller than they feel, typically the carrying costs and the price difference between the dead deal and the next one, not the whole purchase price.

Most sellers land in the same place: pursue the earnest money, relist immediately, and let a real estate attorney say whether anything beyond the deposit is worth chasing. Nolo’s plain-English overview of seller remedies when a contract is breached is a reasonable place to get oriented before that conversation.

How should you relist after a deal falls through?

Fast, and with the inspection findings handled. Contracts that survive typically close in 30 days, so a buyer who toured during your first weekend on the market may still be shopping. Listings in the latest survey period drew an average of 2.0 offers and 19% sold above list price. The competition is still there, but it thins the longer your listing sits in limbo.

Three things to settle before it goes live again:

Deal with what the inspection found. Once you know about a defect, you know about it. Repair it, price it in, or disclose it and offer a credit, but don’t relist pretending the report doesn’t exist.
Decide how the fall-through gets explained. Buyers see days-on-market and assume the worst. “Their financing was denied” or “their own home didn’t sell” beats silence, and it’s usually the true answer.
Reset your net-proceeds math. Every extra month is another mortgage payment plus taxes and insurance, and possibly a price adjustment.

Say a $340,000 sale dies 12 days before closing and the home takes another 45 days to go back under contract. Two more mortgage payments, two more months of taxes and insurance, and a $5,000 concession to the next buyer can outrun a typical earnest money deposit before you’ve paid a single legal bill.³ That’s the argument for speed over vindication. The sequence from relisting through closing is mapped out in our selling process guide.

How do you vet the next buyer’s financing?

Read the preapproval letter like an underwriter, not like a compliment. Most fall-throughs trace back to a financing condition nobody checked when the offer came in, and the fix costs one phone call before you sign.

Ask whether the file is fully underwritten. A prequalification based on stated income, a preapproval based on reviewed documents, and an approval an underwriter has signed off on are three different things. Ask which one you’re holding.
Confirm funds to close, not just the down payment. The buyer needs the down payment plus closing costs plus reserves. Ask whether the source has been verified and seasoned, or whether a gift letter is still outstanding.
Ask what the loan type demands of your house. Government-backed programs apply property condition standards a conventional loan may not. Peeling paint, a questionable roof or an unpermitted addition all change your risk.
Find out whether the buyer must sell first. A buyer who needs their own closing to fund yours is carrying a contingency whether or not it’s written into your contract.
Read the waivers carefully. A waived appraisal contingency is a stronger contract, not automatically a stronger buyer. If the lender still orders an appraisal, the buyer has only agreed to cover a gap they may not be able to cover.

Because Align Lending is a mortgage broker, we can read a buyer’s preapproval letter and tell you what it does and doesn’t commit anyone to, and shop your own next mortgage across our lender network at the same time.

What Michigan sellers should know

Michigan adds four statutory rules that change how a collapsed deal actually plays out.

Your broker is the deposit’s trustee, not its judge: Michigan’s Occupational Code requires a real estate broker to deposit money belonging to others into a separate custodial trust or escrow account no later than 2 banking days after notice that all parties accepted the offer, hold it until the transaction is consummated or terminated, and then account for the full amount. Nothing in that duty lets the broker decide a dispute in your favor.
A missing disclosure statement is its own exit door: The Seller Disclosure Act covers transfers of not less than 1 and not more than 4 residential dwelling units, with exemptions for court-ordered transfers, foreclosure sales, non-occupant fiduciary transfers and transfers to close family. The statutory form says plainly that failure to provide a purchaser with a signed disclosure statement will enable the purchaser to terminate an otherwise binding purchase agreement. Deliver it late and the buyer gets 72 hours to terminate if it was handed over in person, or 120 hours if sent by registered mail.
“As-is” doesn’t erase the duty: Michigan requires each disclosure to be made in good faith, defined as honesty in fact. Once the first buyer’s inspection tells you something, an as-is clause in the next contract doesn’t unlearn it.
Your claim window is 6 years: Michigan sets a 6-year period of limitations on an action to recover damages or money due for breach of contract. That’s an outside window, not a reason to wait, but it does mean the deposit question never has to hold up the relisting. Planning your next move? Start with our Selling a Home guide.

How Align keeps your sale and purchase on one timeline

Selling and buying at once means two closings that have to line up. Samantha builds your next loan around your sale date, together with your agent, so the two dates are planned as one.

She handles your loan herself, with a processor supporting her behind the scenes, and her loans averaged under 14 days from application to clear to close over the last 12 months, across more than 100 loans. Clear to close is not the same as closing: your purchase agreement sets the closing date, and her job is to have your loan ready well before it.

Plan a buy before you sell

Sources: Align Lending loan records, 12 months to October 2026.

FAQ: Buyer backing out of a home sale

Here are answers to common questions about a buyer backing out.

Do I get to keep the earnest money if the buyer backs out?

Only if the buyer canceled without a contractual right to. If an inspection, appraisal, financing or home-sale contingency was still open and they canceled within the deadline, the deposit goes back to them. If every contingency had been satisfied or waived and they simply walked, the deposit is normally yours, but releasing it usually takes the buyer’s signature on a mutual release or a court order. See earnest money deposits for how the funds are held.

Can I sue a buyer who backs out of a signed contract?

Yes, for breach of contract or, in rare cases, specific performance, but it is seldom practical. Litigation costs money now against a recovery that may take a year or more, and a pending claim ties up the property while you could be selling it. Most sellers pursue the deposit, relist, and move on. Talk to a real estate attorney before spending anything, and review contingencies in home offers to see exactly which door your buyer used.

How soon should I relist after a buyer backs out?

Immediately, in most cases. Contracts that close typically close in 30 days, so buyers who toured during your first weekend may still be searching. Ask your agent whether to relist as new or reactivate the original listing, address anything the failed inspection revealed, and be ready to explain the fall-through plainly. Our selling process guide covers the sequence from relisting to closing.

Do I have to tell the next buyer why the deal fell apart?

You must disclose material defects you now know about, including problems the first buyer’s inspection uncovered. You generally do not have to explain a buyer’s cold feet or failed financing, though agents often share it anyway because silence invites worse assumptions. Framing it plainly, with your own inspection or repair receipts in hand, protects your price, see common seller mistakes to avoid.

The bottom line on a buyer backing out

A buyer backing out is a detour, not a disaster: agents reported 6% of contracts terminated in the last three months and 12% settling late, so your house is in ordinary company. Whether you keep the earnest money turns on one question. Whether a contingency was still open when the buyer gave written notice. If it was, refund it and relist. If it wasn’t, pursue the deposit while you go back to market, because contracts that close typically close in 30 days and momentum is worth more than a fight.

If you’re selling to buy your next home, talk to Align Lending. We’ll shop your financing across our lender network and show you what you can carry, with or without your sale closing first. Call 248-506-5727 or start online.

Footnotes:

1. The REALTORS® Confidence Index is a monthly survey of REALTORS®, and its contract figures are self-reported by responding agents about their own recent transactions, not a measured count of all contracts. The termination, delayed-settlement and appraisal-delay percentages are reported on a rolling three-month basis. Figures cited are from the snapshot released August 11, 2026, and change monthly. Return to text.

2. This article is for informational purposes only and is not intended to provide legal, financial, or tax advice. Contract remedies, disclosure duties and limitations periods depend on your specific purchase agreement and facts; consult a licensed Michigan real estate attorney about your situation. Return to text.

3. Example figures in this article are hypothetical and for educational purposes only; they do not constitute an advertisement of credit terms or a rate quote under federal or state lending laws. Your carrying costs, concessions and net proceeds depend on your loan, property, taxes, insurance and closing date. Return to text.

Sources: 6% of contracts terminated in the last three months, 12% with delayed settlements, 6% delayed due to appraisal issues, contracts typically closing in 30 days, an average of 2.0 offers per listing, 19% of homes selling above list price, 16% of buyers waiving the inspection contingency and 21% waiving the appraisal contingency, National Association of REALTORS®, REALTORS® Confidence Index (snapshot released August 11, 2026). Property value for loan-to-value purposes is the lower of the sales price or the current appraised value, Fannie Mae Selling Guide B2-1.2-01. Michigan broker duty to deposit money belonging to others in a separate custodial trust or escrow account not later than 2 banking days after notice of acceptance, to hold it pending consummation or termination, and to account for the full amount, MCL 339.2512(1)(k)(i) and (v). Seller disclosure requirements apply to transfers of not less than 1 or more than 4 residential dwelling units, MCL 565.952; exemptions for court-ordered transfers, foreclosure sales, non-occupant fiduciary transfers and transfers to a spouse, parent, grandparent, child or grandchild, MCL 565.953. Statutory disclosure form language that failure to provide a signed disclosure statement enables a purchaser to terminate an otherwise binding purchase agreement, MCL 565.957. Termination within 72 hours of in-person delivery or 120 hours of delivery by registered mail when disclosure is delivered after a binding purchase agreement is executed, MCL 565.954(3). Good faith defined as honesty in fact, MCL 565.960. A transfer is not invalidated solely because of noncompliance, MCL 565.964. Six-year period of limitations for an action to recover damages or money due for breach of contract, MCL 600.5807(9).

This article is for informational purposes only and is not intended to provide legal, financial, or tax advice. Contract terms, contingency deadlines, disclosure duties and statutory limitations periods vary by transaction and change over time; confirm your rights with your purchase agreement and consult a qualified Michigan real estate attorney about your situation. Figures shown are illustrative, are not a rate quote or an offer of credit, and are subject to change. Align Lending is an independent Michigan mortgage broker, NMLS #2041154.