Can I cancel a real estate deal before closing?
Can I back out of a home purchase before closing if I change my mind?
That is a very timely question, especially given that the real estate market is beginning to show signs of cooling down in parts of Ontario.
After your offer to buy has been accepted and is no longer conditional, you might start rethinking your decision and want to cancel your purchase. People often refer to this as “buyer’s remorse.”
However, in most Ontario real estate transactions there is no cooling-off period, which means there is no guaranteed cancellation period without penalty if you change your mind.
An agreement to buy a home is a legally binding contract. If you have had a change of heart and would now like to back out of your deal, you should expect to face financial and legal implications.
This means that you may risk losing your deposit or worse. If the seller takes legal action and you end up going to court, you could be ordered to complete the purchase, or you may be liable for damages beyond your deposit. The exact amount may be assessed based on loss in value on resale, carrying costs, the seller’s out-of-pocket expenses, and legal costs, among others.
So, carefully consider this as you make your decision, and remember that while there are no guarantees, it is typical for real estate prices to fluctuate over time in various hot and cool cycles. Sometimes the prices go up after a sale, sometimes they drop.
It is always wise to seek counsel from a lawyer who is insured to practice real estate law. Your legal counsel can review the documents, provide strategic guidance and flag potential areas of concern. This will help you make a more informed decision.
There is, however, one exceptional scenario in which you may be able to back out of a real estate deal. Newly built condos sold by builders or developers are legally required to have a right to cancel the agreement within 10 days without penalty, commonly referred to as a “cooling off period.”
If you bought a condo, you will have to provide written notice to the builder, developer, or their lawyer. They will need to receive this within 10 days of the day you receive the disclosure statement or the signed agreement (whichever comes later).
It is important to note that this is not possible with any other kind of real estate purchase unless there is a written provision in the agreement that permits you to cancel it.
For most of us, a home purchase is the biggest financial commitment we will ever make. So, an ideal scenario would be to avoid a situation like this altogether. That is why my advice is do your research, consider all options and thoroughly consider the following before signing an agreement:
- Is the home within your budget?
- Does it meet your needs?
- Do you like what the neighbourhood has to offer?
- Will certain appliances and fixtures be included? Are some (such as the water heater, furnace, and alarm system) under a rental agreement that you’ll have to take over?
- Does the property need any repairs and, if so, how much will they cost?
As well, carefully read all the fine print in your contract, seek your agent’s guidance, and consult with your lawyer.
If you have a question for Joe about the home buying or selling process, please email email@example.com.
This column is for general information purposes only and is not meant as legal or professional advice on real estate transactions.
Joseph Richer is Registrar of the Real Estate Council of Ontario (RECO). He is in charge of the administration and enforcement of all rules that govern real estate professionals in Ontario. You can find more tips at reco.on.ca, follow on Twitter @RECOhelps or on YouTube at http://www.youtube.com/RECOhelps.