Buying property is a big commitment, particularly when it’s your primary home. However, unforeseen circumstances can compel the buyer to back out after a purchase agreement has been signed. While this is unfortunate, it’s not uncommon. In 2025, real estate experts say about 15 percent of real estate purchase agreements were cancelled.
A trusted attorney can help both the buyer and seller through the process of dissolving a purchase agreement and moving on. Both sides of the transaction should have legal counsel so they understand their rights and responsibilities.
Your Rights and Responsibilities in a Purchase Agreement
A purchase agreement is the legal contract that binds a buyer and a seller. It establishes the basics of the transaction and is a starting point for transferring ownership. However, buyers may need to back out, for reasons that may include:
- Property failed inspection.
- Bank denied mortgage.
- Assigned to a different work location by their employer.
- Cash flow issues (financing contingency).
- Job insecurity (financing contingency)..
If the reason for cancelling isn’t enumerated as an acceptable contingency, you may have to negotiate with the seller to get out of the contract or risk losing your deposit (earnest money). In addition, the notice to terminate must be provided within the time limits stated in the purchase agreement.
The purchase agreement should include several key terms, including:
- Names and addresses of buyer and seller.
- A thorough description of the property changing hands, including any negotiated extras like appliances.
- Payment terms, including financing, amount paid in cash, and any deposit made.
- Possession date and key exchange, including where and when the transaction will take place.
- Contingencies that allow cancellation of the agreement.
- Closing date.
- Termination considerations. This includes individual responsibilities for the transaction and penalties for either side withdrawing.
Minnesota purchase agreements for real estate are legally binding unless the reason for termination is included as a contingency. Typical reasons for terminating are financing or inspection issues. To cancel a purchase agreement, first be sure the contingencies allow cancellation. Oftentimes these are straightforward, with defined periods—such as a week to cancel due to poor inspection results.
If the reason for cancelling is included in the contract, the buyer and seller should agree to terminate the contract in writing.
An alternative mode of cancelling a purchase agreement is by using Minnesota’s Statutory Cancellation statute § 559.21 that applies to residential real estate and other contracts for real property. It allows the buyer or seller to back out of a purchase agreement as long as the law’s terms and procedures are met. These include:
- Notification in writing to the other party of the contract cancellation. This must include a description of the property, default date, and reason for cancellation.
- Language in the notice and delivery type must follow specific statutory requirements.
- The party receiving the notice has 15 or 30 days to “cure” the issue that caused the default, depending on the cause.
- If the response period lapses without an attempt to cure the defect, the person who initiated the cancellation can file an affidavit of cancellation. After this the earnest money involved in the transaction is distributed to the rightful party.
- A court order may revive the purchase agreement or rescind the earnest money distribution.
Whether you as buyer get your earnest money back depends on the way the transaction is cancelled. If the right to cancel is defined in the purchase agreement and you meet the stated conditions, the money should be returned after the joint cancellation agreement is signed with the seller. If you use the state Cancellation Statute to cancel the transaction, return of the earnest money may go through arbitration or be decided by a similar court hearing.
Even if you follow all of the rules, cancelling a purchase agreement can be a complex issue. Having legal representation who can explain the steps involved in the process is beneficial.
When an Attorney Can Help
Understanding your rights and responsibilities is critical to correctly cancelling a purchase agreement in Minnesota. An experienced real estate attorney from Waypoint Law can help you navigate the necessary steps, negotiate with the seller, and satisfactorily rescind the transaction. Call for a consultation today.