What can a Massachusetts seller do when a buyer backs out?

In Massachusetts, sellers have more protection than most people realize. The standard Purchase and Sale Agreement includes a liquidated damages clause that allows the seller to keep the P&S deposit, typically 5% of the sale price, if the buyer backs out without a valid contingency reason. Before that deposit is released, both parties must sign a mutual release, which the seller's attorney manages. If the buyer exits within a valid contingency window (inspection, financing, appraisal, or home sale), the deposit goes back to the buyer. The critical question is always: which stage of the transaction did the buyer leave, and did they have a valid contractual reason?

By John Hollis | July 24, 2026

It happens. You accepted an offer, the inspection cleared, you started packing, and now the buyer wants out. It's one of the most stressful moments in any home sale, and sellers in this situation often don't know what they're entitled to, what their obligations are, or how quickly they can get back on the market.

Here's the full picture of what happens when a buyer backs out in Massachusetts, what you're likely to receive, and what your next move should be.

Massachusetts Has a Two-Deposit System — and It Changes Everything

Most states have a single earnest money deposit. Massachusetts uses two, and understanding the difference matters when a deal falls apart.

The Offer to Purchase (OTP) deposit is collected when the buyer submits their initial offer. In Greater Boston, this is typically 1% of the purchase price, though some agents use a flat amount. For a $900,000 home, that's around $9,000. The OTP is a binding contract, but its contingency terms and deposit protections are generally less ironclad than what follows.

The Purchase and Sale (P&S) deposit is the larger sum, typically an additional 4% collected at signing so the combined total reaches 5% of the sale price. On that same $900,000 home, the P&S deposit is $36,000, and the combined total is $45,000. This is the money the seller can keep if the buyer walks away without a valid reason after the P&S is signed.

Both deposits are held in escrow by the attorney handling the transaction, not by the agent and not by you. Massachusetts is an attorney-closing state, which means a real estate attorney manages the funds from the moment they're received until the deal closes or falls apart.

The P&S deposit is where the real protection lives. Once that document is signed and those funds are in escrow, the buyer has made a serious financial commitment to your transaction.

When the Buyer Can Walk Away with Their Money Back

The contingency windows in the P&S determine whether the buyer has a valid exit. If they exercise a contingency within its allotted time and follow the correct process, the deposit is returned. If they don't, the calculus changes.

The common contingencies in a Massachusetts P&S include:

• Inspection contingency. Under the Massachusetts inspection law that took effect October 15, 2025, sellers cannot accept offers that entirely waive the buyer's right to an inspection. Buyers now have a window, typically 7 to 10 days, to conduct inspections and either accept the property, request repairs or credits, or walk away with their deposit refunded. Once this window closes and the buyer has not exercised it, they can no longer use inspection findings as grounds for cancellation.
• Financing contingency. Typically 21 to 45 days from P&S signing, depending on negotiation. If the buyer cannot secure a mortgage commitment by the deadline and has properly exercised this contingency, they're entitled to their deposit back. The key word is "properly" — they must follow the contract process, not just stop responding.
• Appraisal contingency. Less common in Massachusetts standard forms (the GBREB Offer to Purchase doesn't include an automatic appraisal contingency), but it can be negotiated. If it's in the contract and the appraisal comes in low, the buyer may have grounds to cancel or renegotiate.
• Home sale contingency. If the buyer's offer included a contingency on selling their own home and that sale falls through, they may exit without penalty, depending on exact contract language. This is why home sale contingencies are negotiated carefully by sellers.
• Title V septic inspection. If the property has a private septic system, a failed Title V inspection may give the buyer grounds to cancel or require remediation before closing.

As long as the buyer acts within a valid contingency window, follows the cancellation process in the contract, and notifies the appropriate parties on time, they get their deposit back. That's the system working as designed.

For a deeper look at how contingencies work from the buyer side, see Massachusetts Offer to Purchase vs. Purchase and Sale Agreement: What Buyers Need to Know.

When the Buyer Backs Out Without a Valid Reason — and What You Get

If the buyer walks away after all contingencies have expired, or backs out for a reason not covered by any remaining contingency, the standard Massachusetts P&S protects you through its liquidated damages clause.

That clause says, in plain terms: if the buyer defaults on the contract, the seller keeps all deposits as liquidated damages. On a typical Greater Boston transaction at $900,000, that's $45,000. It's not a small number.

There's an important trade-off that comes with accepting the deposit as liquidated damages. In most standard Massachusetts P&S agreements, the liquidated damages clause is the seller's sole remedy for a buyer default. That means keeping the deposit is the agreed-upon compensation for the breach, and the seller cannot then sue the buyer for additional losses, such as the cost of carrying the home another three months, a second round of staging, or the gap between the original contract price and what a new buyer eventually pays.

For that reason, sellers who face a defaulting buyer should review the specific language in their P&S with their real estate attorney before deciding on a course of action. In some circumstances, especially when the liquidated damages don't fully compensate for actual losses, the attorney may advise a different approach.

This is exactly the kind of situation where having an experienced real estate attorney on your side from the beginning pays off. A good listing agent will have set that relationship up before the first offer came in.

The Mutual Release — and What Happens If the Buyer Refuses to Sign

Whether the deposit goes back to the buyer or stays with the seller, the funds cannot move until both parties sign a mutual release. The release is a written agreement that instructs the attorney to release the escrowed funds to one party or the other, and it terminates the contract.

When a buyer cancels within a valid contingency, signing the release is usually straightforward. They notify you (through their attorney), you and your attorney agree, the release is signed, and the deposit is returned within a few business days.

When a buyer defaults without a valid reason, getting that mutual release signed is sometimes more complicated. The buyer may dispute whether they owe you the deposit. They may claim a contingency was still active. They may simply not respond.

If the buyer refuses to sign the mutual release, the deposit sits frozen in the attorney's escrow account. Neither side can touch it. Your attorney can send a demand letter, and if the dispute isn't resolved, you can pursue the matter in court. In practice, most disputes are resolved through negotiation before reaching that stage, often with a negotiated split of the funds rather than a full fight over the entire deposit.

While that's being resolved, you're in a difficult position: you're still technically under contract, which can affect your ability to relist cleanly. Your attorney will advise you on timing.

What to Do Next: Relisting and Repositioning

Once the mutual release is signed, you're free to relist. In a market like Greater Boston in mid-2026, where homes in properly priced submarkets like the South Shore and MetroWest still move in under 30 days, getting back on the market cleanly is usually more valuable than fighting over the deposit for months.

A few things to consider as you prepare to relist:

Your days on market will continue to accumulate from the original list date unless your agent withdraws the listing and starts fresh. In competitive submarkets, a reset can matter. Talk to your agent about the right strategy, whether that means a brief withdrawal and relaunch or a simple price adjustment to signal fresh activity.

The inspection report, if one was conducted, has created a paper trail. Depending on what the inspector found, you may now have known defects that must be disclosed on the Seller's Statement of Property Condition for the next buyer. Your attorney can advise on what you're required to disclose. Trying to hide issues found in a prior inspection is not a strategy worth pursuing, and Chapter 93A triple damages for material misrepresentation are a real risk in Massachusetts.

Pricing deserves a fresh look. If the deal fell apart partly due to a financing or appraisal issue, consider whether your original list price is still where the market supports it. A failed sale followed by a price reduction can create buyer skepticism. Getting the price right the second time matters more than it did the first time.

At this point, you need two people working in your corner: your real estate attorney to handle the deposit release and any contract issues, and an experienced listing agent who knows how to reposition the home and manage the narrative with the next buyer's agent. If you're working through this situation right now, reach out to John Hollis Group at 617-431-1826 or visit johnhollisgroup.com. We've navigated this with sellers across Greater Boston and know how to get you back on track.

Frequently Asked Questions

Can a seller sue a buyer who backs out of a Massachusetts Purchase and Sale Agreement?

Yes, but in most cases the liquidated damages clause in the P&S limits the seller's remedy to keeping the deposit. The seller can pursue additional damages only if the contract does not include a standard liquidated damages clause, which is uncommon in Massachusetts residential transactions. Consult your real estate attorney before pursuing litigation.

How soon can I relist my home after a buyer backs out in Massachusetts?

You can relist immediately once both parties sign the mutual release and the attorney confirms the deposit disposition. Most sellers wait until the release is signed before going back on the MLS to avoid complications. Your days on market will continue to accumulate unless you work with your agent on an appropriate withdrawal and relaunch strategy.

What happens to the Offer to Purchase deposit if a deal falls through?

The OTP deposit (typically 1% of the sale price in Massachusetts) is held separately from the P&S deposit. If the buyer backs out before signing the Purchase and Sale Agreement, the OTP deposit may be refundable depending on the OTP's terms. Once the P&S is signed and the larger deposit is paid, the OTP deposit is typically credited toward that total and governed by the P&S terms.

What if the buyer refuses to sign the mutual release in Massachusetts?

If the buyer will not sign the mutual release, the deposit stays frozen in the attorney's escrow account. The seller cannot access the funds until both parties agree in writing or a court orders the release. Your real estate attorney can send a demand letter and, if necessary, file suit — but this process takes time and money. Most disputes resolve through negotiation before reaching litigation.

Can a buyer back out after the inspection contingency expires in Massachusetts?

After the inspection contingency period expires, the buyer generally cannot use inspection findings as grounds to cancel without losing their deposit. If the buyer backs out for any reason not covered by a remaining contingency, the seller is entitled to keep the P&S deposit as liquidated damages per the standard Massachusetts Purchase and Sale Agreement.

A failed deal is frustrating, but it's not the end. With the right team and the right strategy, most Greater Boston sellers are back under contract within a few weeks. The deposit protection built into the Massachusetts P&S exists precisely for this situation.

If you're working through this for your own situation, we're happy to talk it through. Reach out to John Hollis Group at 617-431-1826 or visit johnhollisgroup.com.

About John Hollis

John Hollis is a Senior Real Estate Advisor and founder of John Hollis Group at Amo Realty, serving buyers and sellers across Greater Boston and surrounding Massachusetts for over 20 years. His team brings market insight, precise preparation, and strong advocacy to every transaction, from Boston to the North Shore, South Shore, MetroWest, and Southeastern Massachusetts.