How to Protect Your Real Estate Commission When a Buyer Defaults in Canada

You get the offer accepted. Conditions are waived. The deal goes firm.

Everyone breathes a sigh of relief and starts planning for closing day.

Then the buyer goes quiet.

Maybe their financing unravels, or the funds don't arrive. Sometimes, the buyer simply doesn't close. The seller is suddenly in a tough spot, the buyer is embarrassed, and your commission is no longer guaranteed after a failed closing.

This is the part of the job that people rarely discuss honestly. You did the work and the transaction went firm, but the sale didn't close.

So, the real question is this:

How do you protect your real estate commission when a buyer defaults on a firm offer in Canada?

In today's market, that question is more important than ever. Buyer defaults create financial chaos for sellers, and when sellers are under pressure, commission disputes follow. The agents who protect themselves best are the ones who build clear agreements, tight processes, and backup plans before problems start.

When you set clear expectations upfront, it becomes much easier to defend your commission if a buyer defaults after the deal is firm.

What Buyer Default Means in Canadian Real Estate

Buyer default isn't a dramatic legal concept. It's usually very practical.

In Canada, a buyer default means the buyer did not complete the transaction after the agreement of purchase and sale became firm. This might include non-completion or a breach of contract, such as:

• Failing to deliver the rest of the funds
• Being unable to get financing after waiving conditions
• Refusing to sign closing documents
• Missing contractual deadlines without a valid extension

Most buyer defaults don't happen loudly. They happen quietly, with delays, missed commitments, and last-minute silence.

A real example: Sarah represented a buyer in Toronto who waived financing on a $950,000 home. Three days before closing, the buyer's gift funds didn't arrive as promised. The seller had already committed to a condo purchase downtown and was facing their own closing deadline. The deposit sat frozen for 8 months while lawyers argued over release. Sarah's commission? Still unpaid. The seller's bridge financing costs? Over $12,000.

Commission disputes happen because several different agreements affect the outcome. It's not governed by one document alone.

In Canada, commission outcomes are influenced by:

• The listing agreement between the seller and the brokerage
• The buyer representation agreement
• The wording of the agreement of purchase and sale
• Whether the buyer was legally considered "ready, willing, and able" to close (meaning they had the financial capacity and legal ability to complete the transaction, not just the intention)
• Provincial regulations, brokerage policies, and standard forms

Every Canadian agent should keep two realities in mind:

First, commission rights are provincial. In Ontario, for instance, RECO mandates specific language around commission disputes. BC has different trust account rules for deposit handling. Alberta's residential forms structure deposit releases differently than Ontario's standard agreements. These differences matter when a deal falls apart, so listing agents and buyer agents must seek legal advice as real estate professionals.

Second, you should never handle buyer defaults alone. Bring your broker in early. Also, make sure any legal advice comes from real estate lawyers, not from assumptions.

Common Reasons Buyers Default After a Firm Offer

Most buyer defaults don't happen overnight. They develop through delays that seem manageable, until they're not.

Agents who can spot the early warning signs can often reduce the risk of a deal falling apart.

Common causes of buyer default in Canada include:

• Financing falls apart after conditions are waived
• Appraisals come in below the purchase price with no plan to cover the difference
• Buyers take on new debt or change their employment
• Gifted funds don't arrive in time
• Title or condo document issues are discovered late
• The buyer gets cold feet once the deal becomes real

When a closing is delayed, sellers feel the impact right away. They face extra mortgage payments, property taxes, utilities, insurance, and storage costs. Bridge financing and rate lock pressures also add up quickly.

This is why buyer defaults on firm offers often become emotional. Sellers aren't just inconvenienced—they're exposed to real financial risks.

Who Pays the Commission When a Buyer Defaults in Canada?

There's no single rule that applies to every situation. However, there are some common outcomes.

On the listing side, most Canadian listing agreements connect the broker commission to a completed sale. When a buyer defaults, sellers are often unwilling or unable to pay the broker commission out of pocket. This is true even if they understand that the agent did their job, per the commission agreement with the listing brokerage.

On the buyer side, buyer representation agreements are now very important. These agreements define when the commission is earned, what counts as a default, and how fees are handled if the transaction fails, including any referral fee.

If a buyer backs out because of a valid contingency before the deal is firm, they usually don't owe a commission. If the buyer defaults after the deal is firm, the situation changes. But this is only true if the agreement clearly states what happens in that case.

Understanding Deposits and Commission Rights

Deposits often become the main focus after a buyer default. In many Canadian transactions, the deposit is the most realistic source of funds when a buyer fails to close. Some listing agreements allow the commission to be paid from retained deposits, subject to the brokerage's policy and the terms of the purchase and sale agreement.

In legal terms, these deposits can serve as liquidated damages (pre-agreed compensation for breach of contract), or in some cases, courts may order specific performance (a legal remedy that forces the buyer to complete the transaction).

However, a default doesn't give anyone automatic access to the buyer's deposit. All deposits, even non-refundable ones, are held in trust accounts and governed by strict provincial rules. In Ontario, trust funds can't be released without mutual instructions or a court order. In BC, similar regulations apply through the Financial Services Authority. Alberta follows its own Real Estate Act provisions.

When a buyer defaults, those funds often get tied up in expensive legal battles that can last for months or even years. In the meantime, sellers who are counting on that money to close on their next home are left to deal with the consequences. Agents waiting for commission are left in limbo.

This is why commission disputes in these situations often center on the release of the deposit, and why clean documentation matters so much.

Protecting Your Commission Before Problems Start

If you want to protect your real estate commission from a buyer default, the work begins before the first showing. It continues before the offer is even submitted.

Structure beats panic every time. I've seen it play out dozens of times—the agents who document everything sleep better at night.

Paperwork doesn't prevent defaults, but it does determine what happens when one occurs. Your goal should be clarity, not confrontation.

Buyer Representation Agreements Are Essential

Buyer representation agreements aren't just administrative paperwork anymore. They're the foundation of commission protection for realtors.

A strong buyer-broker exclusive employment agreement (or other exclusive agreement) clearly outlines in a written agreement:

• When the commission is earned
• What counts as a buyer default
• How the commission is handled if the buyer fails to close

This aligns with the statute of frauds—the legal principle requiring certain contracts to be in writing to be enforceable—which ensures your commission agreement can stand up in court if challenged.

How you explain the agreement is just as important.

A simple, professional approach works best:

"My role is to guide you through this transaction and protect your interests."

"Your responsibility is to act in good faith and meet your contractual deadlines."

"If the deal goes firm and you choose not to close without a valid reason, this agreement explains how I'm compensated for my work."

When buyers understand this from the start, disputes are much less likely to happen later.

Tight Timelines Reduce the Risk of Buyer Default

Many buyer defaults start as small delays that are tolerated for too long. Strong agents manage timelines carefully because missed dates can create problems with leverage.

Here are some key areas to keep tight:

• Financing deadlines and lender conditions
• Verification of funds
• Deposit delivery timelines
• Inspection and document review windows
• Written notice requirements for any extensions

Extensions aren't failures. They're tools. When you use them properly and document them in writing, they can reduce uncertainty. They also protect both the seller and the agents involved.

What to Do When a Buyer Is Heading Toward Default

When a deal starts to slip, your role isn't to panic or argue. Your role is to document, clarify, and preserve all options.

Document Everything Clearly

In any buyer default situation, a clean timeline matters most.

Keep a clear record that shows:

• Key dates and deadlines
• Any missed obligations
• Written notices and responses
• Summaries of communication with the lender
• Requests for extensions and their approvals

This documentation will support your broker and inform any legal advice. It'll also strengthen any discussion about the deposit or your commission.

Managing the Human Side Without Losing Control

Buyer defaults can be emotionally charged. Sellers may feel betrayed. Buyers may feel ashamed or defensive.

Your job is to keep all communication professional and well documented.

Explain the seller's exposure clearly. Quantify their weekly carrying costs. Provide them with options instead of ultimatums.

A calm and structured approach can reduce emotional decisions. This can prevent outcomes that damage everyone involved.

Long Term Systems That Reduce Commission Risk

The best way to protect your commission is through prevention.

Stronger upfront qualification of buyers can reduce the number of failed closings. Verify funds early—ideally before writing any offers. Ask the tough questions about employment stability. Discuss the risks of a low appraisal before an offer is even written. Watch for buyer neglect that could lead to default.

When a transaction carries a higher risk, build backup strategies early. A second offer, even if it's weaker, can provide leverage and peace of mind.

Commission protection for realtors improves dramatically when you acknowledge risk instead of ignoring it.

Your Buyer Default Prevention Checklist

Use this checklist to reduce your exposure before a deal goes sideways:

• Buyer rep agreement signed with clear default language and tail period provisions
• Financing verified in writing, not just pre-approved
• Deposit delivered within 24 hours of acceptance
• All extensions documented via written amendment
• Broker notified of any red flags within 48 hours
• Weekly check-ins scheduled until closing
• Seller protection options discussed within 10 days of firm

When Seller Protection Becomes Critical

Some transactions can absorb a failed closing, but others can't.

Buyer defaults are especially damaging when sellers are relocating or relying on their equity. They're also a problem when sellers are carrying high expenses or are involved in dependent purchases.

In these cases, relisting isn't a solution. It's a gamble.

Seller protection strategies exist to reduce the financial impact of a buyer default. They can keep transactions from turning into crises. When sellers feel protected, they make better decisions. As a result, agents face far fewer disputes over their commission.

A Practical Backstop When a Buyer Defaults

Look, even with strong buyer agreements, tight timelines, and clean documentation, buyer defaults still happen. When they do, the fallout usually lands hardest on the seller. Then it ripples outward to everyone involved in the transaction.

This is where seller-side protection matters.

SecureMyOffer is designed specifically for situations where a buyer defaults after a deal goes firm. Instead of forcing the seller to relist, absorb the loss, or scramble to protect their next purchase, SecureMyOffer provides a structured way for sellers to protect their equity and move forward with certainty.

For agents, that certainty changes the tone of the entire situation. Sellers who know they're protected are less reactive. They're less likely to blame the process. They're also more willing to work through solutions calmly if a transaction needs to be reset.

Coverage must be purchased within 10 days of the offer going firm. This means the conversation needs to happen early, not when a deal is already in trouble.

If you want to understand how SecureMyOffer works—including specific scenarios where it makes sense and what it costs—visit securemyoffer.com or reach out directly with questions about your specific market.

Conclusion

Buyer defaults are a part of Canadian real estate. They always have been, and they always will be.

But what's changed is your ability to protect yourself. You can do this with clear agreements, firm timelines, strong documentation, and proactive risk management.

If you want to protect your real estate commission from a buyer default, you should review your buyer representation agreements. You should also tighten your transaction processes and have honest conversations with your broker before a deal goes sideways.

Structure beats panic every time.

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