Can a Buyer Back Out at Closing in Alberta

Can a buyer back out at closing in Edmonton, AB? The home inspection report can come out unsatisfactory for various reasons but that cannot be the only reason for a buyer to back out of a deal. If a buyer wants to back out of a real estate deal, there must be a valid explainable reason behind that.

Finding the reason why the inspection found different issues, and whether the issues are resolvable or not. The buyer can ask for a clean title of the property and if the seller failed to deliver, it can a reason for the buyer to back out.

Both the buyer and a seller of a real estate deal are legally bound to maintain a timeframe if they want to change their offer or back out entirely. It can often lead to conflict between the two and mostly ends up being a substantial loss for one of the parties after many legal complications and proceedings.

This article discusses the terms and conditions that apply for backing out of a real estate deal, the circumstances, and the consequences. Read through to learn more about the various situations that may arise and the consequences and remedies.


Real Estate Deals: Ideal Vs. Backing Out

After a property is listed for sale, buyers would typically spend weeks inquiring and verifying the deal before getting to the point where they sign any paperwork.

However, once any money is involved in the process (i.e., checking with an inspector, getting a loan for the purchase, etc.), the deal converts to an irrevocable process without legal consequences. The seller might just require certain amounts regardless of other factors if the buyer decides to back out at and after this point.

Once the real estate purchase process and agreement turn to signed documentation, it becomes binding by law. Both the buyer and the seller are legally obligated to carry the deal to a conclusion from this point.

Exceptions include:

  • Complete destruction of the listed property
  • The death of one or both parties
  • Any defects undisclosed in the agreement

If the buyer cancels the deal at and after signing the agreement, the seller could file a lawsuit against the buyer with charges of violating the legal agreement and breach of contract. This would allow the seller to get matters to the state court and seek legal remedy.

The seller may also keep deposits legally for situations when earnest money enters the contract.

When can a Buyer Back Out at Closing?

From the above discussion and what’s generally established about contingencies, it can be said that,

“Backing out of buying a property is much easier before signing the purchase agreement. Backing out of the deal after signing the agreement or after the contingencies expire would most likely cause serious legal or financial consequences.”

Real estate purchase agreements include mediation methods in case of dispute in some states. This gives the buyer a chance to plead their case directly to the seller and settle the dispute out of court with the help of a neutral mediator.

Following is a discussion regarding backing out of accepted offers in various scenarios:

Backing Out with a Contingency

Real estate purchase agreements generally hold several contingencies (conditions required to be met for moving forward and closing the property purchase). These conditions include certain tasks in a mutual agreement that must be completed within a given time frame.

Adding a contingency to an agreement allows you to back out of an accepted offer with very little or no complications while getting back the earnest money you deposited. You can include contingencies to your agreement for securing finances with the lender, selling your own home first, home inspection, and a lot of other purposes.

Consider a situation where a home inspection report came back with some heavy cost issues such as cracks in the foundation or damaged flooring needing replacement. Suppose you have already included a home inspection contingency.

In that case, you can simply back out of the deal at and after the point of discovering such issues without going through any legal or financial penalties, especially if the seller has refused to fix the problem or offset the closing costs with credits.

Financial contingencies are very convenient for buyers as well. It allows you to back out of the deal if the lender refuses to or cannot complete the loan approval.

You must consider the contingency deadlines with utmost sincerity. If you need more time to meet the conditions of a contingency for a certain agreement, you would need to have contract addendums added with the help of your real estate agent and have them approved by the seller.

Backing Out Without a Contingency

The most obvious risk of backing out without a contingency is losing the amount deposited as earnest money. It’s only fair because you did deposit the money with the promise of fulfilling the contract. Backing out without a properly-outlined reason mentioned in the agreement would legally allow the seller to keep the money.

The seller could seek legal remedy if they choose to. They could sue you for “specific performance” where courts would force you to close on the property. However, John Graff, CEO of Ashby and Graff Real Estate in Los Angeles, said,

“You’re more likely to see the courts ordering a seller to close a sale, not the other way around.”

Backing Out at Closing

Considering the conditions regarding earnest money, contingencies, and legal consequences, backing out at closing might seem impossible. However, it is possible to back out at closing without consequences, provided that the following are applicable:

  • The property agreed upon was wholly or partially damaged by a Force Majeure (Act of God)
  • In the event of the seller’s death and non-disclosure in the agreement of any representative from the seller’s end to see the agreement through.
  • There were defects in the property that were not disclosed and discovered at and around the closing time.
  • The seller refused to approve the inclusion of legally legitimate contingencies or addendums to the agreement.
  • The seller refused inspections or manipulated the inspection process, and such activities were discovered and/or proved at around the time of closing.
  •  The seller is found to be engaged in illegal activities at around the time of closing (i.e., illicit drug trafficking, money laundering, etc.).
  • The seller is proven to be in breach of the contract or in violation of the legal agreement.

If any of the conditions mentioned above apply to your purchase agreement, you, as a buyer, can choose to back out of the deal even at the time of closing. Getting the earnest money back might require legal intervention.

Understand What You’re Getting Into

While forming the agreement, make sure to verify the legitimacy of the property listing (i.e., the seller, documentation regarding the property, inspection reports, etc.). It would help if you also kept in mind the conditions under which the seller would be allowed not to pay the earnest money back.

It is necessary that you understand the conditions, timeframe, contingencies, and invalidating factors of the agreement. If needed, you should seek the help of a residential real estate lawyer to have proper legal representation and avoid unpleasantries if things don’t go according to plan.

Frequently Asked Questions (FAQ)

Can a Buyer Back Out Before Closing?

A buyer can back out without any consequences if the purchase agreements have not been signed and the contingency periods have not expired.

What Happens If a Buyer Backs Out At Closing?

Backing out at closing with a contingency causes little or no complications, and you get the earnest money back too. However, if you do so without a contingency, the seller is legally authorized to keep the earnest money. They can also sue you for “specific performance” if they choose to do so, resulting in financial penalties or even prison time in some extreme cases.

Can a Buyer Back Out of An Accepted Offer on the House in Canada?

A buyer can back out of an accepted offer on the house in Canada. However, some conditions and contingencies need to be considered. If the conditions are met and the contingencies are in place, the buyer can easily back out of such an offer.

Can You Sue Someone for Pulling Out of a House Sale?

It is possible to sue someone for pulling out of a house sale. If you are a seller and the buyer has backed out of the sale, you can sue them for “specific performance” if there are no contingencies in place that give them probable cause for backing out.

Wrapping Up

Before getting into a legally binding contract such as a purchase agreement, it would be wise to put all the conditions and contingencies out in the open and form the contract based on circumstances agreed upon by both parties.

Even in such a case, unplanned or unwanted situations may occur. It’s better to have contingencies in place in the event of an unexpected inconvenience to minimize loss.

Since these agreements are legally binding, it’s better to have all possible complications covered beforehand to avoid getting into legal or financial complications. So, we hope now you know can a buyer back out at closing or not.