A buyer can’t back out of a deal just because they’re feeling uncertain, or return a property the way they might a pair of shoes. But it’s much easier to back out of an offer if both parties haven’t signed an Agreement of Purchase and Sale yet, or if an offer hasn’t been accepted. A legally binding Agreement of Purchase of Sale is a contract that involves terms and conditions that include your legal commitment to purchase the property and the conditions of your purchase. If this has been signed, it’s almost always legally complicated and costly to cancel.
Consequences for backing out of a sale vary depending on the stage of the sale, the conditions of the agreement and whether it’s been signed, how the seller or buyer chooses to pursue legal action and other factors. If you’ve already put in an offer on a home, you’ll likely lose the deposit you put down. In Canada, this deposit is usually 1-3% of the home price.
In some scenarios, the seller can successfully sue the buyer for the damages resulting from a lost sale. This can include the costs resulting in a delayed move, the seller’s inability to use your money to purchase a home they wanted to buy, or any money lost in the sale — if the buyer backs out at closing and the house sells for a lesser value when it’s relisted. For example, if the agreed sale is for $1 million dollars before the buyer backs out at closing, and the house sells for $800,000 when it’s put back on the market, the seller could sue for $200,000 in lost value.
The reasons for a buyer to back out vary. Here are a few common scenarios:
Whether you’re buying or selling, work with a competent lawyer who can review and explain the terms of an Agreement of Purchase and Sale, and ensure that the conditions protect your rights as a seller or buyer. Make sure that all the information you and your agent provide to the buyer is clear and accurate; this can protect you from claims of misrepresentation if the buyer gets cold feet. You’ll also want to make sure your real estate agent thoroughly understands the market so that you can accept or make offers that are competitive and reasonable. Hire professionals you trust in appraisals, financial planning, and every step of the homebuying and selling process.
If you’re a buyer, look over our homebuying checklist and choose a real estate professional who knows what you’re looking for and won’t encourage you to go for a property that’s beyond your budget. Finally, know your financial health and consult with a financial advisor before you make an offer. Ensure that you have money for surprise costs, closing costs, and any renovations you didn’t anticipate. This will keep you from making rash decisions and will inform a wise search for homes you can actually afford.
Home buying can be a daunting process, that’s why Houseful is here providing support and guidance at every step of the way. For a new and differentiated homebuying experience, sign up at houseful.ca.
This article offers general information only and is not intended as legal, financial or other professional advice. A professional advisor should be consulted regarding your specific situation. While the information presented is believed to be factual and current, its accuracy is not guaranteed and it should not be regarded as a complete analysis of the subjects discussed. All expressions of opinion reflect the judgment of the author(s) as of the date of publication and are subject to change. No endorsement of any third parties or their advice, opinions, information, products or services is expressly given or implied by Royal Bank of Canada or its affiliates.
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