You've found the house of your dreams - the only problem is that you already put an offer down on another house before the one that you really want came on the market and it was accepted. Are you stuck with the contract, or can you get out of it? Here's a practical guide.

Can You Get Sued?

Yes, you can get sued if you try to back out of a contract once you've signed it. Generally speaking, the seller can sue you for "specific performance." That means that the court will order you to go through with the purchase, whether you still want the house or not.

Will You Get Sued?

That's a much more difficult question to answer. It could depend partially on the real estate market that you're in. If houses are selling quickly and the property you originally wanted isn't likely to sit around, it wouldn't make a lot of sense for the seller to engage in what could be a protracted court case to make you go through with the deal - not when the house could get sold all over again a lot faster.

On the other hand, if you live in an area where the market is sluggish or the property itself has been sitting around for a while, it might be worth the seller's time and effort to enforce the contract.

What Else Can Happen?

You will probably lose any earnest money that you put down unless you happen to be dealing with a very, very understanding seller.

If you're unfamiliar with real estate transactions, earnest money is also called "good faith" money. It's usually about 1-2% of the total purchase price and gets delivered along with your purchase offer as proof of your sincere intent to buy the house. The money generally gets held in an escrow account by the title company until the deal is finalized and then it gets applied to your purchase.

When a deal falls through, there are several things that control what happens to the earnest money. There are usually cancellation fees that have to be paid, but the remainder actually belongs to both you and the seller until some final decision is reached about what's to happen to it.

Many contracts include provisions that will let you walk away from a deal for one reason or another - like an inability to get financing. However, in this situation, since you're essentially just changing your mind, you may find yourself subject to a "liquidated damages" clause. These clauses were invented precisely for this sort of situation. If you agreed to such a clause in your contract, the money will go to the seller.

If you changed your mind very shortly after you signed the contract and it hasn't cost the seller another opportunity to unload the house, you might get lucky and have your money returned, but don't count on it.

If you didn't sign a liquidated damages clause, you might be able to stop the escrow account from releasing the money, but that could quickly result in legal action from an angry seller. It could be worth the financial loss just so you can walk away and move on to your dream home.

Never take definitive action involving a situation like this without having an attorney review your contract so that you know exactly what potential liability you can face. The attorney may also help you negotiate a way out of the contract that will keep you out of court. To learn more, contact a real estate attorney like Iannello Anderson.