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So My Offer was Accepted, Can I Back Out of the Deal?

Yes! Absolutely. As long as the California Association of Realtors (CAR) purchase contract was used (which is almost always the case in Los Angeles), there are several ways to safely cancel a real estate purchase transaction (aka Escrow) without losing your deposit (which is usually 3% of the purchase price).

In the C.A.R Purchase Contract, there are 2 main conditions, also called "Cancellation Contingencies", that allow a buyer to cancel escrow.

1) Inspection Contingency (generally 7-15 days )

The Inspection Contingency is a general term that not only includes the physical inspection of the property preferably with reputable professional inspectors (general, electrical, chimney etc...) but also includes the buyer's due diligence such as reviewing the seller's disclosures, local school district, crime rate, neighborhood noise and several other inquiries that your Realtor can tell you about. At the end of the inspection period, based on their findings, the buyers with the help of their agent may be able to negotiate some credits from the seller or a price reduction from the seller. If an agreement cannot be reached or if the buyer has discovered other issues that cannot be resolved (school district, neighborhood noise, etc...) the buyer can then request a cancellation of escrow and will generally get their 3% deposit back.

2) Financial Contingencies (generally 17-25 days )

a) Appraisal Contingency - Soon after opening escrow the bank will order a professional appraisal of the property. The appraiser will meet both Realtors at the property who will often bring recent local comps (Comparative Sales) to support the accepted sales price and the appraiser will also conduct their inspection of the property, of the neighborhood and of other nearby properties. The appraiser will then submit an appraisal report to the lender for their review. If the appraisal price is lower than the accepted price, that can be an issue for bank depending on the buyer's down payment amount. The buyer can then try with the help of their agent to negotiate a price reduction. If the seller does not want to reduce the price or if the buyer does not want to or cannot make up the difference in price in their down payment, the buyer can then choose to cancel escrow and generally get their deposit back.

b) Loan Contingency - As soon as escrow is opened, the bank or mortgage broker will start working on the borrower's file and start preparing the loan file for submission to the bank's underwriter (even if already pre-qualified, a lot more still needs to be verified by the bank...). Should the loan not be approved by the bank, according to the loan terms of the contract, the buyer can choose to cancel escrow and will generally get their deposit back.

NOTE: All the terms of a Purchase Contract can vary and are negotiable including the length of the contingencies mentioned above. The timing of contingencies all start on the same day and not one after the other.

IMPORTANT: This is a very simplified presentation of the cancellation contingency concept and it should not interpreted literally as the terms of each transaction are unique. The cancellation contingency aspect of a real estate transaction is very complex and should be handled by a real estate professional to protect the buyer's interests when purchasing a property in Los Angeles.

If you have any questions do not hesitate to contact us at (310)467-8042 or

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