What Happens If You Cannot Close on Your Pre-Construction Condo Purchase?
Purchasing a pre-construction condominium can be an exciting opportunity. You secure a brand-new home at today’s prices, often with time to plan ahead for move-in. However, purchasers should be aware that failing to close on a pre-construction transaction can have serious legal and financial consequences.
A common misconception is that if a purchaser is unable to close, the builder will simply return their deposit and both parties will move on. Unfortunately, this is rarely the case.
1. Your Deposit May Be Forfeited
When you sign a pre-construction agreement of purchase and sale, you typically provide deposits that can add up to 20% of the purchase price. If you cannot close, the builder is generally entitled to retain those deposits as compensation for your default. This can amount to a significant financial loss.
2. The Builder May Resell the Unit and Pursue You for Damages
If you do not close, the builder will usually place the unit back on the market. Should the resale price be lower than your original purchase price, the builder may seek to recover the shortfall from you. For example:
Agreed purchase price: $800,000
Resale price: $750,000
Potential liability: $50,000, in addition to losing your deposit
In some cases, builders also pursue purchasers for additional damages, which can substantially increase liability.
3. Additional Costs May Be Claimed
Beyond the loss of your deposit and potential price difference, the builder may also claim for:
Legal fees
Marketing expenses associated with reselling the unit
Carrying costs, such as property taxes, common expenses, and utilities during the resale period
4. Mutual Releases Are Not Guaranteed
Some purchasers believe that if they cannot close, the builder will agree to sign a mutual release—a document confirming both parties are released from the agreement and the purchaser’s deposit will be returned. In reality, builders are not obligated to sign such a release.
If the builder refuses, the purchaser remains in default under the agreement. The builder may then enforce its legal rights, which can include retaining the deposit and commencing legal proceedings for damages.
5. Protecting Yourself Before You Buy
Purchasers can reduce risk by taking proactive steps:
Obtain legal advice before signing – A real estate lawyer can review the agreement, explain your rights and obligations, and identify potential risks.
Plan realistically for closing – Consider future financing conditions and your long-term financial position.
Understand closing adjustments and costs – Be prepared for additional amounts payable on closing.
Do not assume you can “walk away” – Defaulting on a pre-construction agreement can be extremely costly.
Buying a pre-construction condominium can be rewarding, but it is important to understand the risks. If you are unable to close, your deposit, additional damages, and even legal action may be at stake—and a builder is under no obligation to release you from the agreement.
The best protection is to seek legal advice before signing and to ensure you are financially prepared for closing.
Written by Rina You