Can You Cancel a Real Estate Contract Without Losing Your Deposit?

 Posted on February 27, 2026 in Real Estate

You can cancel a real estate contract without losing your deposit, but only under the right conditions. Whether you get your deposit back depends on when you cancel, why you cancel, and what protections your contract includes.

According to a January 2026 Redfin report, over 16 percent of home purchase agreements nationwide were canceled in December 2025, the highest rate on record. Many of those buyers had a legal path to walk away and keep their money. Others didn't, and they paid for it.

If you're buying or selling property in Lake County and want to know where you stand, our Libertyville, IL real estate lawyers can help you understand your options before a costly mistake happens.

What Is an Earnest Money Deposit, and Why Does It Matter?

When a buyer makes an offer on a home, they put down a deposit to show the seller they're serious. This is called earnest money. In Illinois, this amount is usually one to three percent of the purchase price. On a $400,000 home in the Libertyville area, that's anywhere from $4,000 to $12,000.

That money doesn't go directly to the seller right away. It's held by a neutral third party, usually a title company or real estate attorney, until the deal closes or falls apart. Who keeps the money if the deal falls apart depends on the contract and the reason for cancellation.

What Is the Illinois Attorney Review Period, and Can You Cancel During It?

Illinois is one of the few states that gives buyers and sellers a formal window to review a signed contract before it becomes fully binding. Under the Multi-Board Residential Real Estate Contract, both parties have five business days after signing to have an attorney look over the agreement. This is the standard form used throughout Lake County and most of Illinois. During that window, your attorney can suggest changes, raise concerns, or cancel the contract entirely.

If your attorney cancels during this period, you get your earnest money back with no penalties. This is one of the cleanest ways to exit a real estate deal in Illinois. It's also one of the most important reasons to involve an attorney as soon as a contract is signed, not after the review window has already closed.

What Are Contingencies, and How Do They Protect Your Deposit?

Contingencies are conditions built into the contract that must be met before the sale can move forward. If a contingency isn't satisfied and you cancel within the allowed timeframe, you're entitled to get your earnest money back.

The most common ones include:

• Inspection contingency: If an inspection uncovers significant problems and the seller won't make repairs or lower the price, you can walk away and keep your deposit.
• Financing contingency: If you're unable to get a mortgage after making a genuine effort, you can cancel and recover your deposit.
• Appraisal contingency: If the home appraises below the agreed purchase price and the parties can't agree on a new number, the buyer can exit without losing their deposit.
• Home sale contingency: If your purchase depends on selling your current home first, this protects you if that sale falls through.

Every contingency comes with a deadline. If you miss that window, even by a day, you may lose the protection it provides.

What Happens If You Cancel a Real Estate Contract Outside of a Contingency?

This is where buyers get into trouble. If your contingency deadlines have passed and you decide you no longer want the property, that's considered a breach of contract. In that situation, the seller typically has the right to keep your earnest money as compensation for the time lost and other offers they passed on.

In some cases, a seller can go further. Illinois courts have the authority to award specific performance, which means a court can order a buyer to complete the purchase rather than just forfeit the deposit. This doesn't happen often, but it's a real possibility in cases involving unique properties or motivated sellers.

Does Illinois Law Require Sellers to Disclose Problems With the Home?

Under the Illinois Residential Real Property Disclosure Act, sellers must disclose known material defects before closing. A material defect is a significant problem with the property that could affect its value or the buyer's decision to purchase it. This can include a leaking roof, foundation damage, or water intrusion.

If a seller hides a known problem and you discover it after signing, that failure to disclose can give you legal grounds to cancel the contract. It may also open the door to recovering additional damages beyond just your deposit. As of 2026, this requirement is fully in effect for residential transactions throughout Lake County and the rest of Illinois.

Schedule a Free Consultation With Our Lake County, IL Real Estate Attorneys

If you're buying or selling property in Lake County and aren't sure what your contract actually allows, try not to wait until there's a problem. Newland & Newland, LLP is rooted in Illinois, and we are committed to the communities we serve. Our attorneys bring many decades of combined experience to real estate transactions across the state.

Our Libertyville, IL real estate lawyers are here to protect your interests from contract to closing. Call 847-549-0000 to schedule a free consultation. We can offer consultations in Spanish and Cantonese.