Making a Backup Offer on a House in Ontario: How It Works

You find the house you want, and then you learn that the seller has already accepted an offer with conditions. It is easy to assume the door is closed. In Ontario, it often is not, and a backup offer may be a real option.

This article explains how a backup offer fits with the first buyer's conditions, how the seller's escape clause works, what a seller can do with offers, and how deposits are handled. Every deal is different, so your agent or a lawyer should look at the actual paperwork.

Why a seller can still look at other offers

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 or financing. Conditions must be waived or performed by the agreed time before the deal becomes binding, and they must be used in good faith. Once all conditions are waived, the agreement is firm and binding.

How the escape clause works

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

This is the key point for you as a backup buyer. If the first buyer waives or fulfils its conditions within the deadline, the seller must sell to that first buyer on the original terms. Your offer does not displace the first deal in that case.

• The seller gives the first buyer notice of your offer.
• The first buyer has a set time, such as 48 hours, to act.
• If the first buyer waives or satisfies the conditions in time, the first deal goes ahead on its original terms.
• If the first buyer does not act in time, what happens to the first deal and to your offer depends on how the documents are worded, so it is worth confirming with a lawyer.

Why a backup offer should be conditional 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 selling to two buyers.

Because the exact wording matters, have your agent or a lawyer review how that condition is drafted before you sign. A poorly worded backup condition can leave you or the seller exposed.

What the seller can do, and what you can find out

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 the others aside, and does not have to take the highest price.

If you have made a written offer, you are entitled to know the number of competing offers. You are not entitled to know their amounts or conditions.

Deposits and what to do next

Pay the deposit when the agreement says it is due. Paying it late or withholding it can itself breach the agreement. In RECO's example, 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.

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.

• Ask your agent whether the first offer is conditional and whether there is an escape clause.
• Make sure your backup offer is conditional on the first deal ending.
• Check the deposit amount and due date in your offer.
• Have a real estate lawyer review the offer before you sign.
• Be ready to act quickly if the first buyer does not waive its conditions.

Frequently asked questions