How to back out of an offer to purchase
Last updated on December 26, 2023
Can you change your mind after signing a real estate promise to purchase? It’s no easy matter, but it’s not impossible. The law provides for a few exceptions that can lead to the cancellation of the contract to sell a property. However, backing out of an offer to purchase is often more complicated than one might imagine. In this article, we go over the different scenarios.
Here's what you need to know before you try to cancel an offer to purchase.
Contents:
- What is an offer to purchase?
- Offer to purchase : an iron-clad commitment
- The condition needed to cancel an offer to purchase
- The 3 ways to get the cancellation of an already accepted promise to purchase
- Can an offer to purchase be cancelled after the inspection?
- Can the seller cancel an offer to purchase?
- Buying and selling a home: Same obligations
What is an offer to purchase?
The first thing to know is that an offer to purchase, also known as a promise to purchase, is a formal sales contract. It tells the seller that the potential buyer seriously intends to buy their home. If the offer to purchase is accepted in the set-out timeframe and if all the conditions are met, the buyer and the seller must comply with the terms of the agreement. In sum, the buyer is obliged to buy, and the seller agrees to transfer the rights to the property. Failure to comply with the conditions in the offer can expose both parties to legal consequences.
Offer to purchase: an iron-clad commitment
Once an offer to purchase is given to the seller, it can’t be rescinded for trivial reasons. That’s why it is highly inadvisable for buyers to make two offers at once. If both were accepted, an overambitious buyer would find themself forced to buy two properties. Not at all what they intended!
It’s also important to know that an offer to purchase that is withdrawn without justification exposes the buyer to a civil remedy. That’s because the seller might have turned down other good offers in order to agree to this one and may have lost a lot of time believing the property was already sold. And if a real estate broker’s services were used, the broker could also claim their due for the work they put in.
It is impossible to cancel a promise to purchase except in these conditions: if the offer is rescinded before the seller receives it; if there is an escape or cancellation clause already included in the contract; if an agreement is reached between the parties; or if one of the conditions in the contract isn’t met. We can never repeat it enough: this preliminary contract is not to be taken lightly. Canceling a purchase offer is only possible in very specific circumstances. It may be beneficial to obtain legal advice to ensure that the steps taken are legal and to avoid a conflict situation.
The condition needed to cancel an offer to purchase
Respect the authorized dealine
Without specific cause, you have to be extremely quick to withdraw an offer to purchase. It has to be done before it reaches the buyer’s hands. Only then does the Civil Code of Québec allow the buyer to rescind the offer with a written notice and to come out unscathed. However, once the seller receives the promise to purchase, the buyer is bound by law, even if the seller hasn't made their decision known. The seller can either accept the offer, refuse it, ignore it, or make a counteroffer.
So long as the decision time allotted to the seller in the contract hasn’t run out, the contract between the two parties remains valid. The offer to purchase is considered irrevocable during that time and can only be added to by the buyer and always to the other party’s benefit. However, in the case where the offer to purchase doesn’t include a deadline, the potential buyer may withdraw the offer as long as it has not been accepted by the seller.
The 3 ways to get the cancellation of an already accepted promise to purchase
1. Utilize the escape clause and cancellation clause with penalties
If the offer to purchase contains a clause on the right to withdraw from the bargain (called a “right of cancellation” or cancellation clause), this means that additional reflection time may be granted to the buyer. This is rare, but when it occurs, the buyer can withdraw from their obligations within a certain timeframe, even after the offer has been signed. A cancellation clause with penalties, on the other hand, minimizes the repercussions of a withdrawal, regardless of the cause. It lets one of the parties take the offer off the table, in exchange for financial compensation.
2. Obtain mutual consent
In the best of cases, where both parties agree, you can decide together to cancel the contract. In that event, it’s a good idea to simply amend the initial offer to purchase instead of creating a new document. You just saved yourself some sleepless nights and a lot of time!
3. Invoque an unmet condition
There are generally several clauses included in the contract, foreseeing the cancellation of the offer to purchase if certain conditions aren’t met. If this happens, the sale of the property could be halted. For instance, the inspection clause allows the buyer to withdraw after an unsatisfactory inspection report. Additionally, real estate sales are often conditional on getting a sufficient mortgage loan or on the buyer selling their own home within a reasonable amount of time.
What happens if one of the parties refuses to buy or sell the piece of real estate in question, that is, refuses to meet their initial commitment? If no compromise can be reached, this will likely end up in court, where the final decision will be made by a judge.
Can an offer to purchase be cancelled after the inspection?
Yes, if the pre-purchase inspection report raises certain flaws. Generally, this clause requires that a major problem be found that seriously impacts the property’s value. If the seller refuses to fix the problem or lower the price, the buyer will then have reasonable grounds to cancel the offer to purchase.
New properties: A different story
When the buyer is looking at a new property, the preliminary contract includes a mandatory clause giving them 10 days to rescind after signing. However, the seller could claim compensation of up to 0.5% of the selling price depending on what was agreed on in the contract.
Can the seller cancel an offer to purchase?
Unlike the buying party, the selling party has no time limit to withdraw from the moment the purchase offer has been accepted and signed. However, as long as final consent has not been given, the seller can cancel the transaction.
Buying and selling a home: Same obligations
It’s clear now that the offer to purchase is a bilateral commitment. Buyers and sellers have the same obligations, whether the transaction is taking place with or without a broker. Therefore, it’s best to understand your rights and responsibilities before going forward with any offer to purchase.
As we have seen, cancelling a real estate contract is far from simple. Regardless of what stage you’re at, we highly recommend getting advice from a lawyer or a notary. To prevent misunderstandings and make sure you understand all the clauses and conditions when filling out an offer to purchase, see our breakdown of the offer to purchase.
Do you need to sell real estate before making an offer to purchase on a property? Trust our team to help you save commission! Learn more about our professional support and exceptional visibility by scheduling a free consultation or by watching our explanatory videos.
