Between 5% and 7% of residential purchase contracts fall apart before closing, according to the National Association of Realtors’ Confidence Index surveys from 2025.1National Association of REALTORS®. October 2025 REALTORS® Confidence Index Survey So the short answer to how often buyers back out at closing is: roughly one deal in every fifteen to twenty. Whether walking away costs the buyer their earnest money, or nothing at all, comes down to what the contract says and when the buyer pulls the plug.
What the Termination Rate Actually Measures
NAR asks its member agents each month to report the share of contracts terminated over the prior three months. In February 2025, that figure was 5%.2National Association of REALTORS®. February 2025 REALTORS® Confidence Index Survey By March it moved to 6%, and by October 2025 it reached 7%, the highest reading in over a year.1National Association of REALTORS®. October 2025 REALTORS® Confidence Index Survey A year earlier, October 2024 came in at 5%.
Two caveats matter when reading these numbers. First, “terminated” captures cancellations from any direction, not just buyers walking. A seller who can’t deliver clean title or a lender that pulls financing at the eleventh hour shows up in the same figure. Second, not every terminated contract is a dead deal. Some get renegotiated and rewritten rather than abandoned, and those don’t appear in the data at all. The published rate is the floor on friction, not the ceiling.
Why Buyers Back Out
The reasons cluster into a short list, and the order roughly tracks how often each one kills a deal.
Financing Collapses
A mortgage pre-approval is not a funding guarantee. Between pre-approval and closing, lenders re-verify credit, employment, and debt. A buyer who finances a car, opens a new credit card, loses a job, or deposits cash they can’t document can see the loan denied in the final days. This is the most common cause of a late-stage cancellation and the hardest for the seller to see coming.
Inspection Turns Up Something Big
Most inspection findings are minor. The ones that end deals are foundation movement, failing roofs, outdated electrical panels, and active water intrusion. When repair estimates climb into five figures, the buyer either asks for a credit or a price cut, or exits under the inspection contingency. Sellers aren’t required to agree to any repairs, so when the gap in expectations is too wide, the buyer walks.
The Appraisal Comes In Low
If the lender’s appraisal values the home below the contract price, the lender won’t finance the full amount. A $350,000 contract that appraises at $330,000 leaves a $20,000 hole. Either the buyer brings extra cash, the seller cuts the price, or the deal dies. Buyers who waived the appraisal contingency or wrote an appraisal gap clause into the offer are already committed to covering some or all of that shortfall.
Title Defects
A title search can surface unpaid tax liens, boundary disputes, undisclosed easements, or claims from a prior owner’s heirs. If the seller can’t clear the problem before the closing deadline, a buyer with a title contingency can withdraw and recover the deposit. These issues are less frequent than financing or inspection failures but harder to resolve on a short clock because they often involve third parties or courts.
Insurance Won’t Issue
Lenders require homeowners insurance to fund the loan. In regions with wildfire, flood, or hurricane exposure, or at an address with a heavy claims history, coverage can be unaffordable or unavailable. No insurance, no loan, no closing. Contracts with an insurance contingency let the buyer out; contracts without one leave the buyer scrambling.
Cold Feet and Life Changes
Job relocations, breakups, medical bills, and plain remorse push buyers out of deals too. These are the costliest exits because they rarely map to any contingency. Backing out for personal reasons almost always means losing the earnest money.
When Walking Away Costs Nothing, and When It Costs the Deposit
Contingencies are the clauses that give a buyer a legal off-ramp. Each covers a specific risk and runs on a deadline. Act inside the deadline for a covered reason, and the deposit comes back. Miss the window, and that protection expires.
Standard timelines look roughly like this:
- Inspection contingency: usually 7 to 14 days from the accepted offer, long enough to inspect, review the report, and negotiate or withdraw.
- Financing contingency: typically 30 to 60 days. Conventional loans often run around 45 days; FHA and VA loans can take the full 60.
- Appraisal contingency: usually runs alongside the financing contingency, since the lender orders the appraisal during underwriting.
- Title contingency: tied to the closing date, allowing the buyer to review the title search and exit if defects can’t be cleared.
Deadlines are negotiable and can be extended if both sides agree. But watch for a “time is of the essence” clause. When that language is in the contract, courts enforce the dates strictly, and missing one can be treated as a material breach that costs the deposit or opens the door to further claims.
What Happens to the Earnest Money
Earnest money typically runs 1% to 3% of the purchase price and sits in an escrow account with a neutral third party, usually a title company or escrow agent. On a $400,000 home, that’s $4,000 to $12,000 in play.
If the buyer cancels under a valid contingency within the deadline, the deposit is refunded. The buyer sends written notice citing the specific contingency, the seller acknowledges, and the escrow agent releases the funds. This is how most cancellations end.
If the buyer backs out for a reason no contingency covers, the seller generally keeps the deposit. Most standard residential contracts treat the earnest money as liquidated damages, which means the deposit is the seller’s sole remedy for the breach. The seller doesn’t have to prove actual losses. The money changes hands and the matter closes.
When Both Sides Claim the Money
Disputes are common when the facts are ambiguous. Did the financing contingency really apply, or did the buyer tank their own approval by quitting a job? Was the inspection finding a material defect, or an excuse? The escrow agent won’t referee. Escrow holders are neutral and will not release the deposit until both parties sign a mutual release. If no one signs, the money sits frozen for weeks or months.
Many contracts require mediation or arbitration before either side can go to court. If those steps fail, or the contract doesn’t require them, the escrow agent can file an interpleader action, depositing the money with the court and letting a judge decide. The agent’s legal fees typically come out of the deposit itself, so the pot shrinks before anyone collects.
Risks That Go Beyond Losing the Deposit
In most residential deals, the forfeited deposit is the worst financial outcome a defaulting buyer faces. The liquidated damages clause caps the seller’s recovery there.
Exceptions exist. If the contract has no liquidated damages provision, or if it explicitly preserves the seller’s right to other remedies, the seller may sue for actual damages. Those can include the difference between the original price and a lower resale price, carrying costs like mortgage payments and property taxes during the relisting period, and expenses incurred preparing for a closing that never happened.
Specific performance is the rarer remedy. A seller can ask a court to order the buyer to complete the purchase, and courts have historically been more open to this in real estate because each property is treated as unique. In practice, most sellers prefer to keep the deposit and relist rather than wait out a lawsuit, and a seller who seeks specific performance has to prove they were fully ready and able to close on their end.
Waiving Contingencies: What You’re Actually Giving Up
In competitive markets, buyers waive contingencies to strengthen offers. It works, and it’s also where buyers get hurt the worst when something goes wrong.
- Waiving the financing contingency: if the loan falls through for any reason, there’s no contractual exit. The deposit is gone, and the seller may have grounds for more depending on the contract.
- Waiving the appraisal contingency: the buyer owes any gap between the appraised value and the contract price in cash, on top of the down payment. A $500,000 purchase appraising at $470,000 means finding another $30,000.
- Waiving the inspection contingency: the buyer takes the property in its current condition. A cracked foundation or major plumbing failure discovered after closing is the buyer’s problem.
One point of confusion worth clearing up: an “as-is” listing does not automatically strip the buyer of inspection rights. “As-is” means the seller won’t make repairs, not that the buyer can’t inspect or walk away over what the inspection finds. A buyer who writes an inspection contingency into an as-is offer still has that exit.
The underlying danger of waiving contingencies is that it turns recoverable problems into permanent losses. A buyer with an inspection contingency who finds a bad roof loses time. A buyer without one who finds the same roof loses the repair bill.
If You’re the Seller and the Buyer Walks
Start with the contract. If the buyer is exercising a valid contingency within the deadline and has followed the notice requirements, the options are narrow: release the deposit and relist. If the buyer is backing out without a contingency, don’t sign the mutual release right away. That signature is the leverage. Talk to a real estate attorney before agreeing to anything, especially if the deposit is large or the facts are contested.
Sellers who completed seller-funded repairs or moved out early in anticipation of closing have a stronger case for keeping the deposit if the dispute escalates. Document those expenses while the paper trail is fresh.