In some cases, buyers may change their minds or realize that they are no longer financially able to follow through with their purchase. However, reneging has proven to be quite expensive and stressful. Therefore, it is important that buyers are well aware of what they are getting themselves into and the terms by which their offer is based on. An offer is essentially a legal contract, thus turning away from it will pose a series of consequences. Buyers may be subject to losing their initial down payment deposit, or potentially be sued.
Evidently, buyers may regret their decision to put an offer on a property because of many reasons. For instance, the introduction of more stringent mortgage rules by the Bank of Canada due to high household debt and higher mortgage rates, which ultimately affected the amount that people could borrow. This meant that some people could no longer qualify for their mortgage after the newly implemented stress test regulations that were implemented after the closing date. Another common reason is that buyers find that they are unable to sell their own house due to the market decreasing, but have already placed an offer on a new property.
2 Types of Offers
- Conditional: a series of conditions must be met prior to the completion of the sale.
- Subject-Free: the buyer is willing to purchase the house without conditions, which proves to be more efficient, but the buyer is also obligated to follow through with the deal.
The seller will have 72 hours to consider an offer and ultimately decide between accepting, declining, or making a counteroffer. If they decline the offer, the buyer is not obligated to follow through with the purchase. If they agree, the buyer must provide a down payment.
3 Ways that Buyers can Back Out
- If the conditions that the buyer and seller agreed upon cannot be met in time, then the buyer can back out of the deal without being penalized. For instance, a condition could be satisfactorily meeting a home inspection.
- If there are any outstanding work orders, work permits, or liens on the home, the buyer may be able to cancel the purchase agreement.
- If the buyer can prove that the seller had intentionally misrepresented the property in any way, they can successfully back out of the purchase. However, it is important to note that misrepresentation is very difficult to provide evidence for, thus having an experienced lawyer is highly recommended.
Contingencies are generally included in contracts in an attempt to protect the buyer by letting them back out of the deal if certain conditions are present. Some examples include:
- Home Inspection: If the home inspection determines that there are some substantial, problematic qualities of the property, the buyer will be able to retract their offer or the seller must make repairs accordingly.
- Successful Sale of Current Property: The buyer can claim that they will only purchase the new property under the condition that their existing home is successfully sold first.