When buying a home in Ontario, many buyers have a misconception:If you decide you don't want to buy it after all, you'll simply forfeit the deposit, and the contract will be terminated.

The reality is not quite that simple. Once an Agreement of Purchase and Sale becomes a binding contract, both the buyer and seller are, in principle, required to complete the transaction in accordance with the contract. If the buyer refuses to complete the transaction or is unable to do so on the closing date without having a valid grounds for withdrawal as permitted by the contract, this may constitute a breach of contract. The earnest money deposit may be only the first loss incurred.

If the buyer defaults, the seller will typically consider canceling the transaction and may put the house back on the market. The risks faced by the buyer are not necessarily limited to the deposit already paid.
For example, the buyer signs the contract to $1,500,000 I purchased a house and paid for $75,000 Deposit. Later, the market declined, and the buyer was unable to secure sufficient financing, so the transaction was ultimately not completed. If the seller is subsequently only able to sell for $1,350,000 Reselling the house resulted in a total of $150,000 the price difference.

Where supported by specific legal facts, the seller may seek compensation for related losses from the buyer in breach of contract. The fact that a deposit of $75,000 has already been paid does not automatically mean that the buyer’s liability is limited to $75,000. In addition, certain additional losses and reasonable expenses incurred during the resale process may also form part of the dispute. As for which items may ultimately be claimed and the amounts involved, this will require a case-by-case analysis based on the terms of the contract, the measures taken by the seller, and the actual evidence.

“The bank won’t approve the loan” does not typically result in the automatic termination of the contract. Another common scenario is when the buyer believes there will be no issues with the loan at the time of signing, but as the closing date approaches, the bank’s appraisal comes in lower than expected, the loan amount is reduced, or the buyer’s financial situation changes, ultimately making it impossible to secure sufficient financing. Many buyers ask:“It’s not that I don’t want to buy it—it’s that the bank won’t give me a loan. So why am I being considered in default?”Ultimately, it depends on the terms of the purchase agreement. If the agreement contains a financing condition that remains in effect, and the buyer is able to lawfully withdraw in accordance with the terms, the situation may be different. However, if the financing conditions have already been satisfied or waived, or if a “firm deal” without financing conditions was signed, then the mere fact that “the loan was not approved” generally does not automatically relieve the buyer of its obligation to perform under the contract.

Therefore, before signing a firm offer, be sure to carefully assess your ability to secure financing—don’t wait until just a few days before closing to start considering whether you have sufficient funds. If you’re unable to close the deal, don’t wait until the very last day to realize you might not be able to close on time; the sooner you address the issue, the more options you’ll typically have. In some cases, you can negotiate an extension of the closing date with the seller as soon as possible; in others, you may need to explore alternative financing options; and in still others, you may need to negotiate with the seller to terminate the contract or find other solutions. Whether the seller agrees to an extension or to terminate the transaction depends on the specific circumstances. The seller may also require the buyer to cover costs, interest, additional legal fees, or other compensation incurred during the extension period. Therefore,Don’t simply assume that “failure to close the transaction will result in the loss of the deposit,” and certainly don’t wait until closing day to inform your lawyer for the first time that you don’t have the funds to close the transaction.

Real estate transactions often involve large sums of money. A decision that seems simple at first glance may entail legal liabilities amounting to tens of thousands or even hundreds of thousands of yuan. Before signing a purchase and sale contract, you should carefully consider the loan terms, the closing date, and other important provisions; if circumstances change after signing, you should seek legal advice as soon as possible.

If you decide to change your mind about buying a house, you must do so before signing the contract; a contract that has already been signed will not automatically become void simply because you’ve changed your mind.

Note from Liu Xuebing Law Firm:
The contractual terms, amount of the deposit, market conditions, and actual losses may vary in each real estate default case.

This article is intended solely to provide general legal information and is not a substitute for legal advice regarding a specific transaction.