Buyer Backs Out of a Real Estate Deal: What Happens Next?

When a buyer tries to back out of a real estate transaction, the courts typically favor the seller, says Ron Butler, an experienced mortgage broker and co‑founder of Butler Mortgage in Toronto. “If you’re the buyer, find a way to complete the sale—beg, borrow, do whatever you need to do—but close,” he advises. Judges are rarely sympathetic to buyers who seek to cancel an agreed sale, regardless of their reasons.

Julia Sebastian learned that lesson the hard way. In May 2017 she signed an agreement to buy a Mississauga home on Glasshill Grove for $995,000. To make her offer more attractive she waived both the financing and home‑inspection conditions and bid $45,100 above the asking price.

Before closing, the property appraised at $920,000 and Sebastian’s lender refused financing. Four days before the scheduled closing in August 2017, her lawyer informed the sellers the deal was off. The court that later reviewed the dispute disagreed with Sebastian’s decision, noting that market values can fluctuate between offer and closing and that buyers bear that risk. The judge issued summary judgment against her.

As Canadian home prices retreat from pandemic highs, more deals are collapsing. While there are legitimate situations that force buyers to back out, doing so can have severe financial and legal consequences for both buyers and sellers.

Can you back out of a real estate purchase?

Realtor Danielle Demerino compares buying a house to having a baby: once you sign and close, there’s no easy reversal. Buyers’ remorse is common, but because real estate carries major financial implications, agents warn against letting emotions drive the decision to cancel an accepted offer.

To reduce the risk of a failed transaction, experts recommend getting fully pre‑approved for a mortgage before making an offer. “I don’t let people sign contracts unless they’re very, very sure they will get financing,” Demerino says.

“You should find a way to complete the sale—beg, borrow, do whatever you need to do—but close.”

Still, financing can fall through or an appraisal can come in low, and those events often doom a purchase. That’s why many real estate contracts include a negotiated subject period—typically five to seven business days—during which the buyer satisfies conditions such as financing approval and a satisfactory home inspection. If a buyer withdraws during that subject period, they can do so without breaching the contract. Once the agreement is signed and those conditions are removed or waived, both parties are legally bound.

Why there’s been a rise in failed real estate deals

Reliable national statistics on failed closings are hard to find, but agents and media reports indicate failures have risen recently. Butler says his office saw no failed deals in 2019, but between March and July 2022 about 6% of transactions in his portfolio fell through, with roughly 10 deals collapsing over that period.

The uptick in failed sales coincides with a cooling market. After record highs, Canadian house prices have been pushed down by rapid interest‑rate increases from the Bank of Canada as it fights high inflation. When interest rates rise, borrowing costs increase and demand softens, which can lead to lower appraisals and financing denials.

Economists warned of significant price corrections in 2022, and buyers who purchased at peak prices—or who waived conditions to win bidding wars—are especially vulnerable when appraisals and financing don’t align with the purchase price.

What falling prices mean for home purchases

Sellers who want to move face a choice: sell first or buy first. Selling first clarifies budget and avoids financing gaps, but buying first—common in some hot markets—carries risk if home values decline before closing. Rapid drops in values can produce low appraisals, forcing buyers to make up the shortfall or lose financing altogether.

In overheated markets many buyers waived conditions to secure properties, but when the market turns, that strategy backfires. Mortgage broker Angela Calla notes this cycle repeats every few years when supply is tight and competition pushes bids high. Last‑minute solutions can include bringing in co‑signers or taking costlier financing, but those options aren’t always available.

Including compensation for the sellers’ legal fees, the damages totalled more than $122,200.

Buyers’ obligations after inking a deal

Once a buyer signs an agreement of purchase and sale and removes subjects, they are legally committed to the contract’s terms, including the purchase price. The subject period before that stage is the buyer’s main opportunity to walk away without breach, for reasons such as financing not being approved or an inspection revealing serious defects.

After subjects are waived or satisfied, withdrawing from the deal exposes a buyer to legal consequences, including demands for the deposit and additional damages if the seller suffers financial loss because of the failed closing.

Can a seller be sued for failing to close?

Yes. If a seller refuses to complete a sale without lawful cause, buyers can seek remedies such as specific performance, a court order forcing completion. In a 2020 Ontario case, a seller who tried to back out because she felt the price was too low was ordered by the court to vacate and complete the sale after buyers sought specific performance.

The real costs of backing out

When Sebastian pulled out of the Mississauga deal, the sellers—Wonkyun Bang and Eunkyung Moon—were left in a difficult position. They had already contracted to buy a home in Oakville and were relying on the Mississauga sale to fund it. After relisting, their home did not sell for seven months and ultimately closed at $920,000. They sued Sebastian for the losses.

The court ordered Sebastian to pay $75,000 for the price difference, plus nearly $33,000 in financing costs incurred between deals, $1,200 for utilities, roughly $3,000 in property taxes, $800 for insurance, and $6,000 in staging. Together with legal fees, the total award exceeded $122,200. Calla points out that damages in these cases are often much higher than the initial deposit alone.

What options do buyers have?

Buyers who cannot complete a purchase have limited options. Negotiating a lower price with the seller is often the most practical path, since litigation is costly and time‑consuming for everyone. Sellers and buyers commonly prefer to renegotiate rather than head to court.

The best defense is preparation: get solid pre‑approval from a lender, understand contract conditions and timelines, and consult professionals before making offers—especially in fast‑moving markets. Knowing your legal obligations and the risks of appraisals and financing shifting during the closing period can prevent costly mistakes.

Ultimately, following through on a purchase—even if it’s less than ideal—can be less damaging than facing years of litigation, heavy damages, or a court order compelling completion.