In the world of real estate, emotions can run high, especially when the housing market experiences fluctuations. Imagine, you’ve eagerly agreed to purchase a dream home for a whopping $1.2 million. But as the closing day approaches, you stumble upon a similar property down the street, selling for a mere $855,000. Doubt creeps in, and you start wondering: can a buyer back out of a real estate deal? In this blog, we’ll delve into the intricacies of this situation, exploring the legal and financial consequences of such a decision.

Buyer’s Regret and Legal Consequences

The world of real estate operates on the foundation of binding agreements. Once you, as the buyer, sign an Agreement of Purchase and Sale, you are entering into a legally binding contract with the seller. To demonstrate your commitment, you typically provide a deposit, usually ranging from one to three percent of the purchase price. This deposit serves as assurance to the seller that you will uphold your end of the agreement and complete the purchase.

However, backing out of a deal after signing the contract and paying the deposit comes with significant consequences. You immediately forfeit the deposit you submitted with your offer. Moreover, you could be vulnerable to legal action from the seller, who may seek compensation for any losses incurred due to your withdrawal from the deal.

Legal Ways to Back Out of a Real Estate Deal

While the repercussions of backing out of a real estate deal can be severe, there are legal avenues for doing so under certain circumstances.

One common scenario is when the sale is conditional, and these conditions are not met. Such conditions could be related to issues identified during a home inspection, a low property appraisal, or your inability to sell your current home. In these cases, the deal automatically becomes void if the conditions are not fulfilled.

Additionally, an agreement can be rendered null and void for reasons beyond the contract’s conditions. Instances like a lien on the property, significant damage to the property before closing, or proof of significant misrepresentation by the seller might justify cancelling the deal. However, proving misrepresentation can be a challenging legal endeavor.

Risks of Backing Out at Closing

The risks associated with backing out of a real estate deal at closing are considerable. Apart from losing your deposit, you might be sued by the seller for the difference between your agreed-upon purchase price and the amount the property eventually sells for. This potential financial blow can be substantial, especially in a fluctuating market.

For instance, let’s say you agreed to purchase a property for $1 million, and you back out of the deal. Subsequently, the property is resold for $750,000. In this scenario, the seller may pursue legal action to recover the $250,000 difference.

A real-life case, Gamoff v. Hu, serves as a stark reminder of these legal consequences. In this case, buyers who backed out of a deal ended up losing their $30,000 deposit and were ordered by the Ontario Superior Court of Justice to pay $470,000 to compensate for the lost value.

Avoiding the Risks

To safeguard yourself from such situations, it’s crucial to consult with legal representation before signing an Agreement of Purchase and Sale. Lawyers can help you add protective clauses to the contract to mitigate unforeseen circumstances.

Furthermore, setting the right contingencies within the contract is essential to protect yourself from common issues faced by homebuyers. Even in a competitive market, discuss your options with your lawyer, consult a financial advisor, and consider obtaining a mortgage pre-approval to ensure that your Agreement of Purchase and Sale includes the necessary safeguards.


In the world of real estate, buyer’s remorse isn’t a luxury you can afford. Once you’ve signed an Agreement of Purchase and Sale and met the conditions, you are legally bound to follow through. Backing out at closing can lead to significant financial and legal consequences for both buyers and sellers. Therefore, it’s essential to approach real estate transactions with caution, seek legal advice, and understand the terms of your agreement to avoid unpleasant surprises down the road.