Backing Out Of A Real Estate Deal – What Are The Consequences?

Buying a home may be one of the most important purchasing decisions a person has to make in their lifetime. Finding the perfect home, arranging all the necessary finances, and negotiating an acceptable offer with the seller involves a lot of time, consideration and legal paperwork.

That said what happens if the buyer suddenly has a change of heart and doesn’t want to buy the home afterall? Can a buyer back out of an accepted offer? The answer is not straightforward and consulting with an experienced real estate lawyer about the consequences is definitely a critical step before making any rash decisions. This topic is pretty in depth but let’s take a look at what is and isn’t possible to get us started. 

What If You Want To Back Out Of Your Accepted Offer To Purchase a Home or Property?

Handling real estate transactions, especially when it comes to cancelling an offer or purchase agreement, you need to know can be intricate and financially significant. There are legal ramifications involved in retracting an accepted offer or backing out of a real estate deal, affecting both the buyer and the seller.

In Canada, buyers have the option to back out of an accepted offer, provided it aligns with legal regulations. However, if the withdrawal violates the terms of the offer or contract, the buyer is legally bound to uphold the agreement.

Offers and counter-offers can be withdrawn if a specified time limit passes without acceptance or before the other party formally accepts it with a witnessed signature. While offers are typically irrevocable for a specified period, without acceptance and consideration, there’s no legal contract binding the parties.

An Agreement of Purchase or Sale may be terminated if performance becomes impossible due to uncontrollable circumstances, such as property destruction before possession. Certain scenarios, like purchasing newly-built condominiums in Ontario, afford buyers a cooling-off period of 10 days to retract purchase agreements.

Once an offer or counter-offer is formally accepted, both the buyer and seller are legally bound by its terms. Walking away from a deal can result in losing the deposit and potential liability for damages suffered by the other party, including lost opportunities and expenses. While the legal remedy of “specific performance” is rare, a court may still hold the defaulting party accountable for the entire purchase price, along with expenses and court costs which is why getting legal advice before announcing you are retracting an offer can save you a lot of time and financial impact while making sure you are abiding by the law so you don’t accidentally land in hot water.

Legal Ways to Back Out of a Real Estate Deal

Although there are a few hurdles involved there are several legal avenues for withdrawing from a real estate deal. The first scenario involves conditional sales where certain conditions are not met. This could stem from significant issues uncovered during a home inspection, a lower-than-expected property appraisal, or the buyer’s inability to sell their current home. In any case, if the conditions are not fulfilled, the deal automatically falls through.

Furthermore, agreements may be rendered null and void due to factors beyond the conditions outlined in the contract. Common issues that could terminate a deal include discovering a lien on the property, substantial damage occurring before the closing date, or if the buyer can demonstrate that the seller intentionally misrepresented the property in a significant manner.

What Are The Consequences Of Backing Out of An Accepted Offer?

Even if a buyer has the option to withdraw from an accepted offer, they should be prepared for the legal ramifications that may follow such a decision.

Once both parties have accepted an offer and the purchase agreement for a property has been signed, it becomes a legally binding contract that must be honoured. Any breaches of this contract expose the buyer to penalties, whether outlined within the contract itself or mandated by the law.

Potential consequences of backing out of an accepted offer include:

Loss of deposit: The buyer may forfeit their deposit which is made along with the offer to demonstrate good faith. While sellers might return deposit money if they reject the offer, buyers typically lose it if they withdraw after the seller’s acceptance. Although rare, exceptions may exist where the buyer could reclaim this money, typically determined by the contract or court order.

Legal action: In Canada, a seller may initiate a civil case against the buyer for backing out of an accepted offer. This may involve two claims: specific performance, where the seller seeks to compel the buyer to complete the transaction, or damages, where the seller seeks compensation for losses incurred, such as lost income, legal fees, or marketing expenses.

Contractual obligations: Sellers can enforce penalties and other consequences specified in the offer or contract if the buyer backs out without legal justification. Besides forfeiting deposit money and facing potential legal action, buyers may be responsible for various costs outlined in the contract.

In essence, withdrawing from an accepted offer entails potential financial and legal repercussions, underscoring the importance of understanding and adhering to contractual obligations in real estate transactions.

Most Importantly, Don’t Back Out Of An Offer Without Consulting A Real Estate Lawyer

When you’re buying a home, you legally need to have a real estate lawyer to close the deal but there are many legal aspects to a real estate transaction that should be reviewed before the closing. If you’re considering backing out of an accepted offer, you should be working with a lawyer who has experience in this area. However, consulting a real estate lawyer before you sign any agreement is a wise idea, and be sure to communicate your ideas, plans, and any information that will help them guide you — you need to be open with your lawyer and really trust them to truly be supported by their expertise. A real estate lawyer will help spell out any conditions and consequences of your offer before you get to the point of backing out and they often recommend including various clauses to protect you from “just in case” type scenarios as well.. 

At Hukam Law, we have an extensive background in real estate law and are experts in the Barrie, Simcoe County, Brampton, or GTA area. Whether you are moving into or out of the area, we’re here for you and we’ll be sure to protect your interests if you decide that walking away from a real estate deal is the only option for you. Call us 📞 at 705-915-0884, or send us an email at info@hukamlaw.ca if you have questions. We’ll make sure that you have the legal representation you deserve.

***The information provided in this blog is for general informational purposes only and should not be construed as legal advice. If you have legal questions, we strongly advise you to contact us.