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Can You Back Out of a Real Estate Contract?

Sep 21

When buying a home, most Canadians will sign a contract with a realtor who represents the seller. This means that once you've signed the contract, you're committed to buy the house. But what happens if you change your mind later?

In Canada, you can back out of a real estate contract within 7 days after signing. However, if you do not cancel the contract within 7 days, you may lose your deposit and/or forfeit any interest earned on the down payment.

If you decide to back out of the deal, you must return the earnest money deposit plus any interest earned on the amount. It is also possible to get a refund from the realtor, but only if he agrees to accept less than full price.

I'm going to go over how you can back out of the contract without losing your deposit and/or forfeiting interest.

Binding Contract

Binding contract for house in Collingwood

A binding contract is an agreement between two parties where each party agrees to do something for the benefit of the other. In the case of real estate, a binding contract is when both parties agree to buy and sell property together. This type of contract is usually written out in detail and signed by both parties.

The most common types of contracts used in real estate transactions include:

  • purchase agreements,
  • sale agreements, and
  • lease agreements.

These documents outline the terms of the transaction and may also contain provisions such as warranties, representations, covenants, indemnities, and conditions precedent.

A binding contract is often required to close a real estate deal. If either party fails to perform under the terms of the contract, the non-performing party could face legal action. For example, if a buyer breaches his/her obligation to pay money, the seller could sue him/her for breach of contract.

What Happens If Buyer Backs Out of a Deal?

The most common reason why buyers back out of deals is because they feel pressured to make an immediate decision without having time to consider all the options. This often happens when sellers are trying to close quickly.

In these situations, buyers may feel rushed and pressured to sign a contract. If they decide to back out of the deal, they might feel bad about themselves and blame themselves for making a poor choice.

They might also feel guilty about hurting the seller and his family. In addition, they may worry that they won't find another home that meets their criteria.

However, there are ways to avoid this situation. For example, you can include clauses in contracts that give buyers more time to review them. Or you can ask buyers to pay a deposit upfront instead of signing a contract immediately.

You can also provide buyers with information about how long it takes to complete a transaction. This way, they'll know exactly how much time they have to look for a house.

Another option is to let buyers choose which homes they'd like to view. This gives them more control over the process and allows them to explore their options.


You may have heard that there are penalties for backing out of a real estate purchase contract. But did you know that these penalties apply to buyers too?

For example, if you decide to cancel your contract after signing it, you could face fines ranging between $1,000 and $10,000.

The penalty also applies if you change your mind about moving forward with the sale within seven days of signing the contract.

It's important to keep an eye on any changes in the price of the home during those seven days. If the price drops, you'll have to pay more money to complete the transaction.

In addition, if you don't follow through on closing the sale, you could be charged interest on the amount owed. This means that you'd have to pay extra fees to cover the difference between the original contract price and the current value of the property.

These penalties aren't limited to residential properties either.

There are also potential legal consequences if you fail to deliver the keys to the premises. In fact, you could even lose your deposit if you don't hand over the keys.

To avoid paying hefty penalties, make sure you read the fine print carefully before signing the contract.

Ask yourself whether you really want to commit to buying the property. If you decide to go ahead anyway, make sure you've done your due diligence.

How Contingencies May Protect Buyers

Contingency is an agreement between two parties where one party agrees to pay another party for services rendered if a certain condition occurs. In the case of real estate, the seller of the property agrees to pay the buyer a portion of the purchase price if the house sells within a specified time period. This type of contract is called a contingency because it requires both parties to perform in order for the deal to go forward.

In the event that the house doesn't sell within the specified time period, the buyer receives nothing. However, if the house does sell, the buyer receives his money back plus interest.

The advantage of having a contingency clause in a real estate transaction is that it protects both parties. If the house doesn't sell, neither party loses any money. On the contrary, the buyer gains more money than he would have had he purchased the home without a contingency clause.

Financing Contingency

The most common type of financing contingency is called a seller financed mortgage contingency. This means that the buyer pays for the entire cost of the house upfront, but the buyer cannot close on the sale unless he/she receives a loan approval from his/her bank.

This type of financing contingency is very common because banks often require buyers to pay for the full amount of the house upfront.

Another type of financing contingency is known as a private mortgage contingency. The buyer puts money toward the costs associated with purchasing the house (such as closing fees). Once the buyer has paid for these costs, the buyer can apply for a loan from his/her bank and close on the deal.

A third type of financing contingency is referred to as a pre-paid mortgage contingency. In this case, the buyer buys the house outright without paying for the full price of the house. However, once the buyer has purchased the house, the buyer must make monthly payments to the seller until the buyer has paid off the balance of the purchase price.

Inspection Contingency

Inspection contingency is an agreement between buyer and seller where the buyer agrees to pay for any repairs needed after closing. This is usually done because the home inspector finds problems that weren't visible during the initial walk-through.

The inspection contingency clause allows the buyer to make repairs without having to worry about how much they cost. If the buyer doesn't fix the problem within 30 days, he or she is responsible for paying for the repair costs.

Buyers may also ask sellers to include an inspection contingency clause in a purchase agreement.


If you find yourself stuck in a contract where you feel like you have no choice but to sign, here's what you should do: first, talk to your real estate agent.

He or she will likely be able to give you advice on how to back out gracefully without hurting your chances of selling the property.

Second, look into any legal recourse you may have. For example, if you signed a contract under duress (i.e., because someone threatened to sue you), you might be entitled to damages.

Finally, consider talking to a lawyer. They can advise you on whether you have grounds to back out of the deal and what sort of compensation you could expect from the seller.