What happens when a buyer backs out of a real estate deal in Ontario? In a province where real estate transactions are legally binding, walking away from a signed deal can come with serious consequences. Real estate purchases involve not just large sums of money, but also time, emotion, and planning — so it’s no surprise that a deal falling through can cause a ripple effect for everyone involved.
Once a buyer and seller have signed the Agreement of Purchase and Sale (APS), the contract becomes legally binding. This document outlines all the key terms of the sale: purchase price, closing date, and any conditions such as financing or home inspection.
Buyers can back out of deals for several reasons. Sometimes it’s due to financing falling through — even with pre-approvals, a mortgage can be denied after an offer is made. Other times, a home inspection might uncover serious issues that the buyer isn’t willing to take on. A lower-than-expected appraisal can also be a dealbreaker, especially if the buyer’s lender won’t cover the full amount. Life changes like divorce or job loss, or even plain old cold feet, can prompt a buyer to walk away.
If a buyer backs out for a reason that’s not covered by the conditions in the APS, there are real consequences. First, they can lose their deposit. This money, typically submitted with the offer, is meant to show good faith. If the buyer walks, the seller can often keep it.
Second, the seller can sue the buyer for damages. For example, if the home is eventually sold for less than the original agreed price, the buyer might be held liable for the difference. Sellers may also seek compensation for mortgage payments, utilities, and legal fees incurred because of the delay or failed transaction.
So, what can sellers do if this happens? The first step is to review the APS to check if the buyer had a legal out. Then, it’s wise to consult a real estate lawyer to understand the full range of options. In most cases, sellers will want to relist the property quickly to mitigate their losses. If needed, they can pursue legal action to recover damages.
For buyers, the best protection is preparation. This includes getting full mortgage pre-approval before making an offer, including the right conditions in the APS, and seeking legal advice before committing to a purchase. Most importantly, buyers should be sure they want the home before making an offer — backing out for the wrong reasons could cost far more than just a lost opportunity.
In the end, real estate deals are serious commitments. While Ontario’s laws do provide safeguards through contract conditions, walking away without valid grounds can lead to significant financial and legal trouble. Both buyers and sellers should understand their rights and obligations — and when in doubt, turn to a trusted real estate lawyer or Realtor for guidance.
Richard Wang 