Making a Backup Offer on a House in Ontario: Escape Clauses

You find the home you want, and then you learn that the seller has already accepted a conditional offer. It can feel like the door is closed. In Ontario, it often is not, but how a second offer works is different from a normal offer.

This article explains why a conditional deal is not yet final, how an escape clause works, what a seller can do with your offer, what you can learn about competing offers, and what to know about your deposit. A real estate lawyer can review your specific wording before you sign.

Why a conditional offer is not yet a final deal

A conditional agreement is not final and binding until all of its conditions are met or waived. Because of that, a seller who has accepted a conditional offer may still consider other offers.

Common conditions include a satisfactory home inspection. These must be waived or performed by the agreed time, and they must be used in good faith. Depending on the wording, if a condition is not met the buyer may terminate or the contract may end automatically, with the deposit returned. Once all conditions are waived, the agreement is firm and binding.

So a home with an accepted conditional offer is not necessarily off the market. Whether a backup offer has a real chance depends on the first buyer's conditions and how the seller handles them.

How an escape clause works

The seller protects itself with an escape clause. It requires the seller to give notice to the first buyer and gives that buyer a set time, for example 48 hours, to waive or satisfy its conditions.

If the first buyer waives or fulfils its conditions within that deadline, the seller must sell to that first buyer on the original terms. If the first buyer does not, the first deal can come to an end according to its terms, which may open the way for the next buyer. The exact steps depend on the wording of the first agreement, which you will not usually see.

• The seller gives notice to the first buyer.
• The first buyer has the stated time, for example 48 hours, to act.
• If the first buyer waives or satisfies its conditions in time, that buyer gets the home on the original terms.
• If not, the first agreement may end under its terms, and a backup offer could then matter.

Why your backup offer should depend on the first deal ending

A backup, or second, offer should be made conditional on the first deal ending. That way the seller does not end up obligated to sell the same home to two buyers.

For you, this means your offer is not a guarantee of getting the home. It only becomes live if the first deal falls away. Ask a lawyer to check how that condition is worded, including what happens to your deposit if the first deal does not end.

What the seller can do, and what you can learn

When an offer is received, the seller may accept it, reject it, make a counter-offer, or ask the buyer to revise it. With competing offers, the seller may negotiate with one buyer while setting others aside, and does not have to take the highest price.

A buyer who has made a written offer is entitled to know the number of competing offers, but not their amounts or conditions. So you can ask how many offers there are, but you should not expect to see what others bid.

Your deposit as a backup buyer

The deposit is normally held by the brokerage in a real estate statutory trust account. It can be released only with a mutual consent or release signed by all parties, or under a court order.

Paying a deposit late or withholding it can itself breach the agreement. In one example from the regulator, a buyer who held back a deposit due on acceptance until after an inspection may have given the seller grounds to terminate and seek damages. If your backup offer sets a deposit date, follow it, and ask a lawyer first if the timing is unclear.

What to do next

• Ask your agent whether the home has an accepted conditional offer and how many offers there are.
• Have a lawyer review your offer before you sign, especially the condition tying it to the first deal ending.
• Check when and how your deposit is due and who holds it.
• Keep your own conditions realistic, and use them in good faith.
• Be ready for the seller to accept, reject, counter or ask for changes.

Frequently asked questions