When Is It Too Late to Back Out of Buying a House in Ontario?

Most of the time, when a buyer places an offer on a house, the transaction will proceed and close without fuss or fanfare. Sales happen every day of the year, and real issues that jeopardize the transfer of ownership are fortunately few and far between.

What happens, though, when an obstacle arises that just cannot be overcome? Today, we’ll look at the implications of when a buyer walks away from closing in Ontario.

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Can a Buyer Back Out at Closing?

A real estate contract is a binding legal agreement, and you can’t just change your mind without a valid reason as outlined in the document. Even a conditional offer is not the escape many people believe it is.

By law, you must enter into a legal agreement in good faith. Conditions on an offer are used to protect you from reasonable problems you can’t predict or control, like your financing falling through at the last minute or a house that appears pristine secretly harbouring structural flaws. You cannot, however, use a condition as an excuse for buyer’s remorse.

On the other hand, if there were a condition that the seller cannot satisfy, a buyer could back out of an accepted offer and receive their deposit back. Buying a house means striking that perfect balance between protecting your interests and appealing to the seller.

In a market with too many listings and not enough buyers, you have a little more negotiating power. If there are multiple buyers and not enough homes to meet the demand, the seller has more of an advantage. In any case, a homeowner is not likely to consider an offer with so many conditions that they can’t effectively plan their own next steps.

While we’re on the subject of legalities in real estate, here are some other topics you’ll want to know about:

Is There a Cooling-Off Period in Real Estate?

Ontario has a 10-day cooling-off period, but there’s a caveat: it only applies to new-construction condos. This short window to back out begins when the buyer receives their signed agreement and the disclosure agreements. Currently, there are plans to introduce protections for buyers of newly built freehold homes as well, but these are not expected to take effect until 2027.

When buying a resale home (an existing house that someone already owns), there is no cooling-off period whatsoever. If you place an offer and the seller accepts, you must be prepared to follow through.

As a buyer, you can protect yourself financially by budgeting carefully and getting a mortgage pre-approval in advance. Taking these steps ensures you don’t place an offer on a house you can’t close on. Even better, add a financing condition whenever the market allows.

Who Gets the Deposit When a Buyer Backs Out?

If a buyer places an unconditional offer, the seller will almost always keep the deposit if they back out before closing. Since a typical deposit on a house is 5% or more, this can be a massive amount of money to forfeit, considering the prices of houses in Toronto.

Backing out of a conditional offer is more viable. If there’s a valid reason, the buyer will receive their deposit back from the seller and the contract becomes void.

Buyers forfeiting their deposits happens most frequently in unpredictable markets. Imagine the house they purchased at $1 million drops in value to $950,000, and prices are still falling.

At this point, the transaction no longer seems like a worthy investment. The loss of the deposit is steep, but going through with the commitment seems even more expensive, so they decide to cut their losses and cancel their purchase agreement.

Looking for more high-level home-buying advice? The posts below will help:

Can the Seller Sue a Buyer for Not Closing?

Some buyers have the impression that they can walk away from a transaction. They may lose their deposit, but then they’re free to resume their search for something newer, better, less expensive, or whatever may be more suitable for their needs.

However, the consequences can be more dire than simply losing your deposit. Often, pursuing legal action is too time-consuming and costly, and the seller may decide to just move on and relist their home.

The problem is when the buyer backing out causes the seller serious hardship. Think back to that example of the $1 million home and view it from the seller’s perspective. You have a legal agreement, and the buyer backs out. Now, you’re forced to sell the house for $50,000 less. The homeowner could very well sue the buyer for the difference and any other expenses associated with the failed transaction.

In an even worse situation, the seller themselves could have an accepted offer on their next home. The buyer backing out means they now have to cover the cost of two homes or try to cancel their own agreement. Whenever the seller can prove that they suffered a financial loss, they could potentially sue the buyer for hundreds of thousands of dollars, as one homeowner did successfully in 2024.

Searching for a house you’ll never want to walk away from? Start by browsing our featured listings.

Why Professional Representation Is Critical

Instead of jumping in headfirst and then asking “what happens if you can’t close on a house?” it’s much better to avoid that situation altogether. Working with an experienced local real estate agent will allow you to stay objective and consider a transaction from all angles.

We’ll discuss your budget, what type of home is right for you, and how to troubleshoot any issues before they become major problems. In addition, you will need a good real estate lawyer to protect you legally. Under expert guidance, you can craft the most compelling offer possible while still allowing you the maximum protection.

Buying a house should be a happy, exciting time. With the right support and advice, you can look forward to a positive and rewarding transition.

Do you want to buy your next home the right way? Our Toronto luxury real estate agents will guide you every step of the way. Reach out to ana@asantos.ca or call us at 416.575.7317 to learn more.