Backing Out of a House Offer

Can You And Should You Withdraw an Offer?

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Since the pandemic, Canada's housing market has witnessed a lot of fluctuation. From bidding wars in 2021 to major markets entering the buyer’s market territory in 2023, there have been many ups and downs in the market conditions over the past few years. There is now a high level of uncertainty surrounding home prices and mortgage rates. Meanwhile, inflationary pressures are adding to the financial challenges for Canadians.

Homebuyers who have already placed an offer on a property may be concerned about home prices falling in the near future or be unsure about being able to afford their mortgage. Some homebuyers may have second thoughts about their purchase and may be considering backing out of the offer, often referred to as ‘buyer’s remorse.’ However, backing out of an offer may not be very easy, and it may have serious consequences.

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The best time to withdraw your offer is before it is accepted. Once the buyer and seller have signed the offer document, also known as the agreement of purchase and sale, it becomes a legally binding contract. In this situation, the agreement can be cancelled only if both parties decide to cancel it mutually. Some agreements may include what is called a cooling-off period or a buyer's remorse period. A cooling-off period is a specified amount of time during which the buyer can withdraw the offer with little to no consequences.

You can place either a conditional or a firm offer on a home. While firm offers do not include any conditions for the sale to be completed, conditional offers include contingencies that need to be met before the sale can conclude. If the offer is a conditional offer, the sale can be cancelled in a legal way if the conditions of the offer aren’t met in the specified time frame.

• With a contingency: If you back out of a conditional offer due to contingency not being met, you will likely be able to get out of the agreement without much hassle. You should also be able to get your deposit back with ease.
• Without a contingency: If you want to back out of an offer due to non-contingent reasons, you are at risk of losing your deposit. You can try to convince the seller to cancel the sale mutually, but most sellers likely won’t agree. A deposit is a form of assurance for the seller that you are serious about buying the home and will follow through with the sale. Withdrawing your offer gives the seller a legal right to keep the deposit. This can be a very costly mistake as most sales require you to put down a deposit of 1%-5%. For a $500,000 home, a 5% deposit comes to be $25,000.

  Meanwhile, the seller can also sue you for breaching the terms of the contract. The seller can also sue you for a price difference if they end up selling the house for a price lower than what was agreed in your contract. For example, let's say your purchase agreement was for $600,000, but you backed out of the offer. The seller then had to put the house back on the market, and the best offer they got this time was $525,000. In this situation, the seller might sue you to make up for the lost $75,000. You may also have to cover the seller’s legal fees and other expenses in such a scenario.

You may have to back out of an offer due to various reasons, some of which can be included in the offer as contingencies. Listed below are common conditions that you can include in your offer.

• Financing Contingency: One of the most common contingencies included in purchase offers is that of financing. This contingency can protect you if you fail to get approved for a mortgage after making an offer. If the buyer does not get approved for a mortgage, the offer terminates without any legal consequences.
• Inspection Contingency: This is another very important contingency that can protect you if the property isn’t in an acceptable condition. The home inspection contingency usually covers standard inspection of the home’s interior, exterior and HVAC system; however, additional inspection, such as mold or wood damage, may be negotiated. If some issues are discovered during the inspection, you can ask the seller to fix the issues or even choose to walk away from the sale.
• Home Sale Contingency: This contingency protects you in a situation where you cannot sell your current home within a specified timeframe. If you are looking to find a buyer for your current home before finalizing the sale of your new home, this may be an important contingency to put in your agreement.
• Appraisal Contingency: This contingency can protect you if the appraised value of the home is lower than the agreed-upon purchase price. You can hire a professional to appraise the value of the property. If you are not sure about the property’s value, you can include this contingency in the offer. However, many sellers may be unwilling to accept an offer with such a contingency.

Apart from the above contingencies, there are some other issues that are beyond the contract, due to which the agreement can be legally voided. A deal can be cancelled if the property suffers extensive damage before the closing, if there are liens on the property, or if it is proven that the seller has misrepresented the property.

The best time to back out of an offer is before it is accepted. At this stage, you can request your real estate agent to withdraw your offer, and you will face no consequences if the offer hasn’t been accepted.

If you decide to back out of the house offer after it has been accepted and the cooling period has passed, you need to work with your real estate agent and your real estate lawyer, who can submit a written explanation of why you want to cancel the contract. In this case, you are likely to face some consequences.

There are certain measures that you can take to minimize the risk of having to back out of an offer.

• While it may be tempting to make an offer on a property you like, especially in a competitive market, you should carefully consider how much mortgage you can realistically afford before making an offer. You can even consult a financial advisor and get a mortgage pre-approval to know what you can afford.
• Work with an experienced real estate lawyer and ensure that important contingencies are built into the contract.
• Read the contract document thoroughly and understand its terms before signing it.

While no one can stop you from walking away from a sale, it isn’t easy to get out of a pre-sale contract without repercussions. To see to it that your interests are protected, you must ensure that important contingencies are built into the contract so that you can get out of the sale if unfavourable conditions arise. In very competitive markets, buyers always have the pressure of making firm offers instead of conditional ones, but you must remember that the contingencies are to protect yourself. Real estate transactions include large sums of money, and even a small mistake can turn out to be very expensive.