How Often Do Buyers Back Out After a Home Inspection?

As anyone who’s put a house on the market knows: selling a property is a long process for all parties involved. This is especially true for the seller. You have to fix up the property to ensure everything is in working order, clean and prepare the home for potential buyers, and endure viewing after viewing before finding a buyer — not to mention all the contracts and other legal aspects. 

But did you know that a buyer can back out even after a contract is signed? 3.9% of real estate sales fail after the contract is signed.

There’s nothing more frustrating than having a buyer back out at the last second. Even if you’re lucky and the house sells quickly and above the asking price after a heated bidding war, many things can go wrong that cause a deal to fall through. One of the most common deal-breakers is when the buyer feels the house failed a home inspection.

Can buyers back out after inspection?

Yes, buyers can back out after an inspection, but only under certain circumstances. Real estate purchase contracts often have contingency clauses — or situations that allow a party to back out if certain conditions are not met. In other words, this means that the contract is contingent on these conditions. Most contracts have what is called the home inspection contingency, which states that the buyer is allowed to have the home professionally inspected before the contract becomes legally binding. If the inspection reveals unforeseen or undisclosed issues with the home, they can legally back out of the agreement.

However, buyers must conduct this inspection during what is called a “due diligence period.” During this timeframe, buyers have the right to research the house and surrounding area as they see fit to ensure there aren’t issues that they think will end up being more trouble than they’re worth. In addition to the physical aspects of a home, the due diligence period also covers contingencies involving finances. For example, many contracts have stipulations such as the mortgage financing contingency and the appraisal contingency, which allow the buyer to back out if they get denied a mortgage or loan. Depending on where you live, the due diligence period will likely be between 7 and 14 days.

Contracts also usually have a contingency about what is called a “due diligence fee” or “good faith money.” During the due diligence period, a third party (usually the real estate broker) holds this money in escrow. It will be paid back to the buyer if they notify the listing agent or seller’s real estate attorney that they are backing out before the due diligence period ends. The due diligence fee will vary depending on your local market, but typically they amount to around 1-5% of the purchase price.

Why do buyers back out after a home inspection?

One of the most common reasons buyers back out after a home inspection is simple: the inspector finds something wrong with the house that they feel is a more significant issue than what they’re comfortable with. For example, if the home inspector finds something toxic, such as asbestos or mold. Mold can be notoriously hard to get rid of because it sometimes can start growing in places not directly visible. Even if the seller has walls sprayed or boards replaced, some buyers don’t want to risk it coming back and having to tear the house apart themselves in the case of the mold being somewhere deep in the walls that are difficult and expensive to get to.

Structural defects are also an issue that might cause buyers to back out. Suppose a home inspector finds a rotted column in the home after their inspection. In that case, a buyer may back out even if the seller is willing to fix it prior to sale — the buyer could deduce that one rotted column might mean that the home will be susceptible to other structural issues in the future.

Another reason buyers may back out is due to the seller not being flexible. For example, let’s say your home sold for $30,000 above the asking price after a bidding war. After a home inspection, the would-be buyers found a legitimate issue that would cost $3,000 to fix, so they asked for the difference to be taken off the price — they may be eager to move in and figure it’s easier for both parties to speed up the process and get it fixed themselves. If a seller refuses this compromise, the buyer might view the seller as greedy or unscrupulous. To the buyer, this behavior might be a red flag that there may be other issues wrong with the house, so ultimately they decide to back out. 

What to do if your buyer backs out during due diligence?

The last thing any party involved in a real estate deal wants to do is start from square one after a deal falls through, but it’s a relatively common occurrence. If you’re a seller, the unfortunate truth is that re-listing a home after a buyer backs out may cause it to garner some stigma, making it more difficult to sell the home. It’s probably not what you want to hear, but it’s better to know what you’re up against before starting the process over again. Regardless of the issue in question, it’s a good first step to speak to your realtor for advice, as they’ve likely dealt with similar problems in the past.

Before you list the house again, review the inspection report and look at the issues yourself. Do you agree with the inspector’s assessment? If not, you may want a second opinion from a different home inspector or perhaps a dedicated professional such as a roof inspector. Specialized inspectors will usually be more thorough and knowledgeable than a generalized home inspector and can give you more insight into any issues that may arise.

If the second inspector has the same opinion as the first, consider making any repairs that you can. It might seem like a hassle, but it will save you a lot of time and money. You won’t have to haggle with buyers over how much to take off the purchase price, and it might even save you from having to list the home a third time if the buyer backs out again. Think about it this way: if the issue was big enough that it caused the first buyer to back out, there’s a good chance another buyer will back out for the same reasons. By having everything fixed beforehand, you’ll be able to re-list confidently.

Once the house is back on the market, potential buyers and agents may assume there’s something wrong with the house and thus have more questions. To ensure you’re prepared, put yourself in the buyer’s shoes, devise a list of questions you would have, and then create a list of answers. It’s also important to ensure you know your state’s disclosure laws. Most likely, they will state that you must disclose any issues discovered during an inspection, and you don’t want to accidentally break the law and get sued. At the end of the day, honesty is the best policy!

As long as you take the necessary steps to address the issues that arose during the inspection and communicate to the buyer that these problems have been taken care of, you shouldn’t have too much trouble finding a new buyer. Above all, you want to ensure you don’t have to go through the process a third or even fourth time, as the more times a home has to be put on the market back to back, the less attractive it becomes to potential buyers and subsequently the less money you may be able to get for it.

Re-listing a home is undoubtedly an endeavor no one wants to go through — but remember that it’s not the end of the world. And it comes with a silver lining: if you end up selling another home in the future, you’ll know exactly what precautions to take prior to your first listing to ensure a buyer is unlikely to back out.