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.
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.
In Ontario, there is a mandatory cooling-off period of 10 days when buying a new condo from a builder, as per regulations of the Condominium Act. Meanwhile, in BC, a cooling-off period of three business days is observed after a buyer has accepted an offer. If the buyer backs out of the deal during this time, they have to pay a cancellation fee of 0.25% of the selling price. For a $1M home, this amounts to $2,500.
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.
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.
If your purchase offer is a conditional offer that includes an inspection contingency, you can walk away from the deal if the results of the inspection are not satisfactory. If any issues are uncovered during the inspection, you can ask the seller to fix them before buying. The seller may refuse to fix the issues or may offer you credit to fix them, which may or may not be enough to cover the expenses. In such a situation, it may be in your best interest to walk away from the sale.
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 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.