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When you make an offer on a home for sale, you’re entering into a legal contract. If the seller accepts your offer, you’re legally required to carry on with the deal. 

But what happens if you want to back out? Are there situations that would allow you to walk away from a deal that both parties have signed? If not, what sort of consequences can you potentially face for backing out of a purchase agreement?

Key Points

  • There are some situations in which buyers may back out of a real estate deal without penalty, particularly when there are conditions included in the offer.
  • Walking away from a signed purchase agreement without just cause can come with serious consequences, including loss of your home deposit and litigation.
  • Buyers and sellers should understand the law and their rights and obligations before signing a purchase agreement to avoid repercussions.

Can A Buyer Back Out Of An Accepted Offer In Canada?

Yes, buyers can back out of a real estate deal that’s already been signed; however, this may happen only under certain situations. The ability for buyers to walk away from a signed deal depends on the terms of the contract and the stage of the transaction. 

The following are scenarios in which buyers may legally back out of a deal without consequence:

The Contract Includes Conditions

Purchase agreements typically include conditions that must be either fulfilled or waived by the expiry date. Common conditions include financing, home inspection, and Status Certificate conditions. If these conditions are not met within the specified period, the buyer can back out of the deal without penalties.

The Buyer Backs Out Before The Cooling-Off Period Ends

Some provinces, like Ontario and British Columbia, allow buyers to have a “cooling-off” period where they can back out of a real estate deal without consequence. 

Ontario 

In Ontario, buyers of pre-construction condos have 10 days after signing a purchase agreement to decide whether to proceed with a transaction. Section 73 of the Condo Act in Ontario allows buyers to rescind or cancel the purchase agreement without repercussion within this cooling-off period.

British Columbia

In BC, buyers have up to 3 business days to back out of an offer made on a home after the seller has accepted under the Home Buyer Rescission Period (HBRP). Properties that qualify for the HBRP include both new and existing homes.

The cooling-off period in BC is not as restrictive as it is in Ontario, where this period may only apply to pre-construction condos. In BC, the only exclusions include residential homes located on leased land, sold at an auction, or sold under a court order. Leasehold interests in residential properties are also excluded.

Mutual Agreement Between The Buyer And Seller

If there is a mutual agreement between the buyer and seller, the real estate deal can be dissolved.

The Seller Breaches The Contract 

If the seller fails to meet the terms of the agreement, the buyer may have the right to back out without penalties. For instance, the seller may have promised to make certain repairs before the closing date, as stipulated in the contract, but failed to do so. In this case, the buyer may have reason to back out without penalty. 

That said, this may depend on how major the repairs are. If they’re relatively minor, it may not be reason enough to back out of a deal. In most cases, buyers ask for a credit on closing to cover the cost of making the repairs themselves.

When Is An Offer Considered “Accepted”?

Buyers need to understand what an “accepted” offer means. This makes the contract legally binding and decides whether they can back out of a deal without repercussion. 

A purchase agreement is considered accepted by the seller when they sign it within the irrevocable period, which is how long the offer is open for acceptance. Once the seller signs the offer, the contract is legally binding and both parties must uphold their obligations as stipulated in the contract.

Buyers who back out of the deal before the closing date could face consequences. 

What Happens If You Back Out Of A Real Estate Deal?

Buyers may face certain consequences for walking away from a real estate transaction without a good reason. Consequences for doing so may include the following:

Loss Of Your Deposit

The purpose of a deposit is to show the seller that you’re claiming a financial stake in the contract. This provides some security that you’ll follow through with the deal. However, backing out without just cause could mean you’ll lose your deposit, which typically means losing tens of thousands of dollars.

Threat Of Legal Action

The seller may go so far as to take you to court to recoup any financial damages they suffer because of the failed deal. Financial losses may be incurred in the following ways:

  • The seller has to pay to have their property relisted and marketed to find a new buyer
  • The seller ends up selling their home for a lower price, thereby suing for the difference
  • The seller has to continue paying carrying costs (ie. mortgage payments, utilities, etc) until they find a new buyer

Damage To Your Reputation

Word could get around that you’ve backed out of a real estate deal. If other agents or sellers catch wind of this fact, you could find it more difficult to find representation or hurt your negotiating power for a future deal. 

Various Financial Losses

For instance, if you’ve already paid to have a home inspection appraisal done these charges are non-refundable.

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How To Minimize Your Risk Of Penalties For Backing Out Of A Deal

The odds of you backing out of a real estate contract may be small, but the possibility is still there. To reduce your risk of being penalized for walking away without just cause, consider the following:

Include Conditions In Your Offer

Always include important conditions in your offer, such as financing or home inspection conditions. If you’re unable to get financing or you’re unsatisfied with the home inspection, for instance, you can back out of the deal before the condition expires.  

Know Your Rights

If you’re buying a new condo in Ontario or BC, understand your rights to a cooling-off period, as mentioned. In these provinces, you have a few days to cancel the deal without penalty. Understand what these periods entail (10 days in Ontario and 3 days in BC) and use this cooling-off period if required.  

Do Your Due Diligence

Have the home thoroughly inspected by a professional and secure mortgage financing before making a firm offer. Take some time to scope out the neighbourhood to ensure it suits your lifestyle. 

Communicate Clearly With The Seller

If you must back out of the deal for whatever reason, communicate clearly and swiftly with the seller and your agent. Perhaps an agreement can be reached that would allow you to avoid penalties.

Can Sellers Back Out Of An Accepted Offer?

The situation with a seller backing out of a real estate deal is similar to when a buyer walks away. If a seller tries to back out without just cause, they may face consequences. 

Maybe the seller has been unsuccessful in finding a new home after selling, or they’re facing a family emergency that has thrown a wrench in their plans. Whatever the reason for wanting out of the deal, they could be penalized for failing to uphold their end of the bargain.

There are, however, some scenarios in which the seller may be able to back out of a deal:

Condition To Buy A Home

Sellers can include a condition in the agreement that makes the home sale contingent on the seller’s ability to find and buy a new home. By including such a condition in the contract, a seller could legally back out of the deal if they can’t fulfill this contingency. 

Mutual Agreement

Buyers and sellers can negotiate and mutually consent to any agreement, including the ability to cancel the deal. If there is a mutual agreement between the two parties to sever the contract, then the seller may back out. 

Breach Of Contract

Any breach of contract by the buyer, such as failing to make a deposit or missing condition deadlines, could be grounds for breaking the contract. 

An Unexpected Event Takes Place 

If something happens to the home through no fault of the buyer or seller, such as a fire or flooding, it may be impossible to continue with the contract. In this case, either party may back out of the deal.

Final Thoughts

If you’re thinking of putting in an offer on a home, consider including conditions to protect yourself. If you’re unable to meet these conditions, you’ll have a legal way to back out of the deal without repercussions. In other cases where you may not have just cause to walk away from a signed deal, consult with your real estate agent and a lawyer to discuss your options and the consequences you could face.

House Offer FAQs

What happens if financing falls through on a house?

If you can’t get financing on a home, you may back out of the deal if you include a financing condition in your offer. However, if you do not have this condition, you could face serious consequences, such as losing your deposit or being subject to litigation from the seller due to additional costs incurred to have to relist and market the home.

When is it too late to back out of buying a house in Ontario?

It’s too late to back out of a real estate deal after the offer is firm. That means the conditions were either met or waived before their expiry dates. If the conditions are not met, the offer is null and void and your deposit is returned.

Can a seller sue the buyer for backing out of a real estate deal?

Yes, the seller of a failed real estate deal may sue the buyer for walking away from the contract without just cause. The seller may sue to cover the cost of relisting their home. The seller may also sue for the difference in price if they end up selling the home for a lower price.

Bryan Daly avatar on Loans Canada
Bryan Daly

Bryan is a graduate of Dawson College and Concordia University. He has been writing for Loans Canada for five years, covering all things related to personal finance, and aims to pursue the craft of professional writing for many years to come. In his spare time, he maintains a passion for editing, writing screenplays, staying fit, and travelling the world in search of the coolest sights our planet has to offer.

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