Can a Buyer Back Out of an Accepted Offer in Canada?

What you need to know about backing out of a real estate deal

Anna Dunaeva DLegal Anna Dunaeva October 4, 2022
DLegal Law Office - shack

Can a Buyer Cancel an Accepted Offer to Purchase?

In a perfect world, neither party would back out of an accepted offer on a house or property. However, real estate deals don’t always go to plan. Your current home may not sell in time, your financial circumstances may change, or contingencies in your purchase agreements may void the contract.

If you are a buyer in Canada, it is crucial to be aware of your rights, the consequences of backing out of a real estate deal, as well as what you can do if the seller decides to renege on the purchase agreement.

Any contract in Canada is subject to the approval of both parties, and a real estate transaction is no different. Therefore, there are typically significant financial or legal consequences if the buyer or seller simply changes their mind and backs out of an offer after it has been accepted.

Can a Buyer Back Out at Closing?

Backing out of a real estate transaction after an offer has been accepted is not unheard of and occasionally happens for various reasons. For example, suppose you are the buyer and have had a change of heart or circumstances have changed so that you can no longer afford the home. In that case, you can rescind your offer without any legal repercussions as long as it’s before both parties officially sign the contract.

However, once the contract is signed, you will be held to its terms and may have to pay damages if you back out. So while it is possible to back out of an accepted offer, consequences can make it unsavory to do so.

Consequences for Buyer Backing Out of an Accepted Offer?

In most cases, if a buyer backs out after the seller has accepted their offer, they may lose their deposit (otherwise known as earnest money). This can amount to tens of thousands of dollars you have spent years saving for.

It also puts the buyer at risk of being sued for breach of contract. The amount could be for the loss of value of the property or for the difference of value in the house (if the seller eventually sells it at a lower price). Fortunately, most sellers will not take it that far and simply walk away with the buyer’s deposit.

In today’s hot real estate market, some buyers pull the trigger on a home purchase before they are really ready. However, it’s essential to be absolutely sure that you can commit before making an offer on a property. If you have any concerns or questions, it’s best to consult with a real estate agent or lawyer before moving forward.

When Can a Buyer Legally Back Out of a Deal?

If there are contingencies (aka conditions) in the purchase agreement that have not been met, then the buyer will have the right to walk away. In a real estate transaction, contingencies are terms and conditions that must be met in order for the sale to go through. The most common contingencies include financing, inspections, and appraisals. However, there can also be contingencies related to a home sale, repairs, zoning, title to make sure there are no surprises, and other factors.

For example, a buyer may not know if a house will meet inspections, their zoning needs or if they will get the necessary financing. These conditions will have a deadline that the buyer or seller must adhere to, so make sure you are aware of them as the buyer.

These contingencies serve an important purpose. They help to protect unforeseen circumstances and ensure that the property meets the buyer’s expectations. Without contingency clauses, buyers would be at risk of paying for a property that is not up to their standards or which they could not get financing for.

Another way a buyer can legally walk away is if they can prove that a seller knowingly misrepresented the property. In the offer, the seller must disclose all known latent defects of the property. Suppose they knowingly omit any information which might devalue the property for a potential buyer. In that case, the buyer can take the seller to court, where they can be charged with fraudulent, negligent, or innocent misrepresentation. However, this is more common after the closing date and impresses upon the buyer the importance of a home inspection contingency.

House Sale Contingent

The house sale contingent is one of the most popular contingencies that can be added to a real estate contract. A house sale contingency is a provision in a real estate contract that states the sale of the property is conditional on the sale of another property. This type of contingency can legally protect a buyer from the consequences of backing out of a deal if their ability to purchase the home they’ve put an offer on is conditional on them selling their existing home first.

A home sale contingency protects buyers from being forced to purchase a property they can’t afford, gives them time to find another buyer for their own home, and offers a seamless transition. However, it’s important to note that a home sale condition may make your offer less attractive to sellers since it introduces more uncertainty into the deal. As such, you may need to sweeten your offer in order to persuade the seller to accept a home sale contingency clause. Also, if your home does not sell, you may still be stuck with paying for non-refundable lender’s appraisal and home inspection fees.

A seller can also take steps to protect themselves from long wait times on a home sale contingency. They can come to an agreement with the buyer on a contingency expiry date and check to see if the house is already on the market and listed at a fair price or whether it has already been on the market for over 90 days. In which case, the odds of a sale are significantly decreased.

Can a Seller Back Out of an Accepted Offer?

Yes, a seller can back out of an accepted offer if they get cold feet. However, in the same way, there are legal and financial consequences for a buyer to back out of an accepted offer; there are consequences if a seller does the same thing.

A seller may also be sued for breach of contract. This may result in the judge ordering the seller to complete the sale anyway or for a lis pendens being put against the house, making it extremely difficult to sell in the future.

However, more often, the seller will need to pay back the buyer the deposit amount and any of the expenses they have incurred with interest. This can include the cost of inspections and appraisals, lost equity, and any reasonable expenses they incurred.

Additionally, suppose a seller lists with an agent. In that case, the real estate agent may take legal action against the seller to recoup their lost commission and costs of marketing the property if they back out.

When Can a Seller Legally Back Out of a Real Estate Deal?

Suppose a buyer does not adhere to the contingency deadlines or expectations. In that case, both parties can consider the purchase agreement null and void. If this is the buyer’s fault, then the seller can expect to walk away with the amount of the deposit.

Suppose the home inspection finds undesirable conditions or other non-at-fault contingencies void the real estate contract (such as the loan approval falling through). In that case, the deal dies automatically, and both the seller and buyer can part ways without consequence.

How to Avoid Risks of Backing Out Before the Closing Date?

It is imperative that you consult a real estate lawyer or agent before signing your purchase agreement. They will be able to add contingency periods and other terms that will protect you from common issues property buyers might encounter. There may be questions of land use, mineral interests, and more that may not even cross your mind without an attorney.

As soon as both the buyer and seller sign the agreement, the deal becomes a legally binding contract. Therefore, it is much easier to walk away from a property before you sign a purchase agreement and give your down payment. However, if at some point you begin to get cold feet after both parties have signed the legal contract, consult your real estate lawyer for the best advice on how to move forward.

Choosing DLegal for Your Real Estate Closing

At DLegal we handle hundreds of real estate closings. Our lawyers will protect your interests in the transaction so you know you are buying exactly what you signed up for. We will verify all documentation, help you prepare the paperwork for your mortgage, and review the contract and property title and Real Property Report to make sure there are no surprises. One of our lawyers will personally spend time with you to ensure you fully understand the process and the numbers. These transactions are often time-sensitive, and it is important we proceed without delays. If you are in the process of buying or selling, get in touch with our real estate lawyers today.

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