When a Deal Falls Through, Who Keeps the Deposit?

You’d cancel your house purchase, but you’re worried about what happens when a real estate deal falls through. 

By the way, who does get the deposit? Typically, not the answer you’re hoping for.

When a deal falls through from no fault of your own, you can walk away without a backward glance. Flood or severe weather damaged the home beyond repair? That’s called a “frustrated” contract, and since you’re not at fault, the real estate transaction can be cancelled. 

But if what you have is buyer’s remorse, you may be locked in. That is unless your Axess Law real estate lawyer rewrites your contract to protect you from what can happen if a deal falls through. 

What’s in your agreement of purchase and sale?

A piece of paper that writes " TERMINATION OF CONTRACT"

What It Means When a Deal Falls Through 

Buyer and sellers are legally bound by written terms and conditions in an offer to purchase or counter offer. Buyers typically lose their deposit when a deal falls through — and you could be liable for any damages the seller suffers.

Your good faith deposit is only released if:

  • the sale goes through
  • you mutually agree to it
  • or the contract specifies it.

Can a buyer back out of an accepted offer in Canada?   

Allow us to elaborate.

The 4 Consequences When a Deal Falls Through

The actual consequences when a real estate deal falls through depend on your contract. Generally speaking:

  1. You lose your entire deposit.
  2. The seller asks to be compensated for storage or moving expenses, real estate expenses, or opportunity loss. Being under contract discourages other potential buyers from touring a property, or making an offer. If the seller is delaying in selling, you could be out of pocket. 
  3. You may be sued for the difference between your offer and the final selling price. See why offering over the asking price may not be in your best interests. 
  4. A court could compel you to buy the property. Legally, buyers and sellers are required to “perform” (or fulfill) conditions contained in a real estate contract. While unlikely, a court could hold you responsible for the entire purchase price, plus expenses and court costs. It’s called specific performance. 

Changing your offer when financing is delayed.

Dealing it inside the court with a trial

Avoid Losing Deposits if a Deal Falls Through

Arrange for Mutual Release

Returning a deposit requires the seller and buyer to mutually agree. Even if your contract is conditional on a satisfactory home inspection or mortgage financing, a mutual release clause is obligatory. It prevents the seller from instructing their realtor to withhold your deposit or pursuing you in court to keep it.

Put Agreements in Writing

Courts follow what a contract says. Unless the seller defaulted by canceling the sale, or the contract is frustrated through no fault of yours or the seller, expect to lose the deposit if you walk away.

Think it over before signing a firm offering real estate contracts

No Deposit is No Excuse

Failing to pay a deposit doesn’t relieve you of legally binding terms in your contract. The seller can only relist the property, or accept other offers if the contract specifies that non-payment terminates the sale. Otherwise, the contract requires you to do exactly what it says. 

Can a Deal Fall Through After Closing?

Occasionally, for reasons like these:

Home or Yard Are Messy

Was the home in something other than “broom swept condition” – in other words, clean and tidy when you took possession? Debris everywhere, broken-down furniture tossed in the yard? Ask the seller to pay for a cleaner. You may be temporarily inconvenienced, but the handover otherwise carries on as normal. If delays are unreasonable, pass on negotiating, clean it up yourself, and take the seller to court.

Patent Defects Are Obvious

Visible problems like holes in the wall (known as patent defects) are frankly not worth pursuing. Unless the agreement of purchase and sale states otherwise, you have little recourse for problems in plain sight.

Serious Defects Exist

Likewise, a written agreement with a professional home inspector may relieve them of responsibility for latent (unobvious) defects, like a crumbling foundation or a home in a flood zone. Before you talk to a lawyer, check the seller’s property information sheet (SPIS) to see if the defect was listed.

Why You Need a Real Estate Lawyer 

Axess Law negotiates with the seller’s (or buyer’s) lawyer to resolve deposit disputes. We thoroughly review your contract for who keeps the deposit and add essential clauses that protect you from costly misunderstandings.

Best questions to ask lawyers when buying a house

Even if you’ve already signed, Axess Law may be able to amend or extend your agreement of purchase and sale. 

Your virtual real estate lawyer discharges mortgages, finalizes financing agreements for lenders, and searches for title to the property to transfer it to your name. When the deal is done, Axess Law gives you the keys to your new home.
Depositing and claiming money in bank

Affordable Real Estate Lawyers, Anywhere You Are 

Access lawyers for less in Greater Toronto Area, Ottawa, or anywhere in Ontario when you buy, sell, or transfer property. Axess Law’s flat-fee real estate lawyers are affordable, and our rates are all-inclusive (excluding taxes, disbursements, and third-party charges). Axess Law offers you only the legal services you absolutely need. Your final invoice includes no surprises or hidden charges. Your itemized statement of adjustments is explained when we deliver it, and we answer any questions you have about it. 

Use a virtual real estate lawyer, anywhere in Ontario

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