What Happens When a Home Sale Falls Through?


The home buying and selling process is both exciting and scary at the same time.  There is a lot at stake financially as well as emotionally and those last few weeks leading up to the closing can be nerve racking.

But what happens when the deal falls through?  There are many reasons for a real estate transaction to fall through, here we’ll discuss how this can happen and what you can do if it happens to you.

Once an offer and deposit have been made by the buyer, and accepted by the seller, the Agreement of Purchase and Sale becomes a legally binding agreement. When a sale goes through, the deposit monies become part of the purchase amount. However, there are times when sales are not successful, through no fault of your own. What could cause this and what happens to your deposit when something that is out of your hands causes the sale to fail?


When a Home Sale is Terminated

There are many types of things that can cause an agreement to be terminated. When you put an offer on a property, your real estate agent will write in the conditions that need to be met to ensure that you are happy with the sale. For instance, if you wanted to see a positive home inspection report before the sale was finalized, the realtor would write this condition into the Agreement of Purchase and Sale. However, if the agreement was subject to a home inspection and the report came back with major, expensive problems that need to be corrected, the condition would not be met and the agreement would be forfeit.

Other times, the purchase of your new property is dependent on other factors, such as the sale of your existing home. If your old house cannot be sold, the new property cannot be purchased. There are countless conditions that can be written into an agreement and any competent realtor will make sure that they review all of the possibilities with you. It is important that all of it is down on paper. Another example might be if your purchase is pending rezoning approval. The realtor would write in a condition so that you can get out of the contract if you do not get approval. There would be no point in owning the property if you could not build on it as you wished. No matter how many conditions are in the agreement, if any of them are not met, the termination clause kicks in and the deal is off. You would want your deposit back so you can continue looking at other properties. So where did that deposit money go in the first place?

Working With Mortgage Brokers

When you deal with a broker, the broker is required by law to place your deposit monies in their real estate trust account within five business days of receipt. Brokerages must protect your money and act impartially. In the case of a failed agreement, the brokerage distributes the money to either 1) the buyer, whose name was written into the Agreement for Sale that was signed by both the buyer and the seller, or 2) as described in a court order. There are absolutely no other ways your money can leave the real estate trust account. Breach of trust is a serious offense punishable under the Criminal Code of Canada.

Getting Your Money Back

Getting your funds back is not difficult, but there are formalities that need to be followed. Your broker can only return your deposit after “releases” are signed by both parties. This is part of their legal obligation to protect your funds. These releases sign off any obligation they have and stipulate that the money is being returned to the writer of the cheque, and “only” to the writer of the deposit cheque. Your deposit funds cannot be redirected in any other way.

These stringent procedures ensure that your money is protected whether the sale succeeds, or fails. There is no need to worry that your hard-earned money has been lost due to circumstances beyond your control. Your deposit is in good hands with your broker through their real estate trust account.

If you have questions about buying and selling a home, you can contact me here.

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