how bad is breeching a contract?

Hi.
We are selling/buying a house so we are using the same real estate agent.Now that the 2 houses are in escrow we realize that we cannot afford to buy the house, and now we want to cancel the escrow of the house we are buying but my real estate agent and also her broker said that there could be very serious charges against us. How bad could it be as far as breech of contract or liquidated damages? what should we do?

[HomeGuru]

What do you mean you can not afford to buy. Is it that you will not have enough cash or do not want to use all the cash you will have from savings and from the sale of your home? Are you or can you get qualified to buy the home? If not, your agent did not prequalify you. Is there a financing contingeny in your purchase contract?

Thanks Homeguru for the reply.
Well yes we were prequalified for a home loan , so we thought it would be dumb on our side to buy a house that we cannot pay off, and also we did'nt give a $1,000.00 deposit for the house, also in the contract that we signed ;in the part of liquidated damages was not initialized. So since we are new in the house thing we need to know our options in order to be able to get out of the contract, so whats better to do? to go default on the paying of the house or get it over with the breech of contract?

[HomeGuru]

You need to have an attorney review your purchase contract for "escape clauses".

In general, it is better to default now then later.