In the vast majority of real estate transactions, the period between an accepted offer and the closing day is one of excited anticipation. However, for a small but significant number of deals, this period can become fraught with stress, conflict, and uncertainty, culminating in the collapse of the entire transaction.

A real estate deal falling through is one of the most challenging situations a buyer or seller can face. It’s more than just a disappointment; it’s a breach of a legally binding contract with serious financial and legal ramifications. The Agreement of Purchase and Sale is not a casual handshake—it’s an enforceable document. This guide explains the two primary ways a deal can fall apart and the serious consequences for the party at fault.

Path A: The “No-Fault” Termination of a Conditional Offer

The most common and least contentious way a deal ends before closing is through the exercise of a condition. When a buyer submits a conditional offer in Ontario, they are building in legal “escape hatches.”

For example, if an offer is conditional on a satisfactory home inspection or on the buyer securing financing, and the buyer, acting in good faith, cannot satisfy that condition within the specified timeframe, they can choose not to waive it. In this scenario, the agreement becomes null and void as per its own terms.

  • Outcome: The deal is legally terminated.
  • The Deposit: The buyer’s deposit is returned to them in full.
  • The Next Step: Both parties typically sign a document called a Mutual Release, which formally dissolves the agreement and directs the brokerage to return the deposit. Both parties can then walk away without further obligation to each other.

Path B: The Breach of Contract on a Firm Deal

This is the scenario where serious consequences arise. A breach of contract occurs when one party decides not to complete the transaction after the deal has become “firm”—meaning all conditions have been waived or it was a firm offer in Ontario from the outset. This is not a mutual termination; it is a default by one party.

When the Buyer Backs Out (The Most Common Breach)

Imagine a buyer gets cold feet, their financial situation changes unexpectedly, or they simply decide they don’t want the house anymore after the deal is firm. Their failure to close constitutes a breach of contract.

Consequences for the Buyer:

  1. Forfeiture of the Deposit: The seller is almost certainly entitled to keep the buyer’s entire deposit. The deposit is considered an upfront promise and a pre-estimate of damages the seller will suffer.
  2. Being Sued for Damages: The seller’s claim often doesn’t end with the deposit. They have the right to sue the defaulting buyer for any and all additional financial losses they incur as a result of the breach. These damages can include:
    • Loss in Property Value: If the seller has to relist the property and ends up selling it for a lower price than the buyer’s original offer, the buyer can be sued for the difference.
    • Carrying Costs: The seller can sue for the costs they incurred while having to hold onto the property longer than expected, such as additional mortgage payments, property taxes, utilities, and condo fees.
    • Additional Legal and Commission Fees: The buyer may be held responsible for the seller’s extra legal fees and any additional real estate commissions resulting from the new sale.

When the Seller Backs Out (Less Common, But Serious)

Sometimes a seller has a change of heart and refuses to close the deal. Perhaps they feel they sold for too low a price, or their own moving plans have fallen through. This is also a serious breach of contract.

Consequences for the Seller:

The buyer has two primary legal remedies:

  1. Sue for Damages: The buyer can sue the seller for the costs they have incurred. This can include their legal fees, home inspection and appraisal costs, moving and storage expenses, and potentially the loss of their own deposit if they were simultaneously selling their home. Furthermore, if the buyer has to purchase a similar, more expensive property because market prices have risen, they can sue the seller for the price difference.
  2. Sue for “Specific Performance”: In some cases, the buyer can ask the court for an order of “specific performance,” which would legally compel the seller to go through with the sale. However, this is a rare remedy. The buyer must prove to the court that the property is truly unique (e.g., a one-of-a-kind historic home or a specific piece of land with unique attributes) and that monetary damages would not be an adequate compensation for their loss.

The Frozen Deposit and the Mutual Release

In any dispute where one party is in breach, the deposit becomes frozen in the real estate brokerage’s trust account. It cannot be released to either party without a signed Mutual Release from both the buyer and the seller, or a court order. A party who is not in breach cannot be forced to sign a release. This often means the deposit can be tied up for a significant period while the dispute is resolved through negotiation or legal action.

The home buying process culminates in a binding contract that carries immense legal and financial weight. Breaching this contract has cascading consequences that can be financially devastating. The best way to avoid a collapsed deal is through meticulous preparation, ensuring your finances are absolutely solid before making a firm offer, and relying on the expert guidance of your real-liable estate agent and lawyer every step of the way.