It’s a situation every Realtor dreads: a buyer was unable to close their new construction deal.
It was signed months, maybe even years ago, and the agent was already partially paid. Those funds are long gone, having been used to run their business and their life. Now, the developer is demanding those funds back in full.
It’s a reality more Realtors face in a market experiencing an uptick in failed new construction deals.
The numbers are dismal: Urban Nation reports 10 projects were cancelled in 2025’s third quarter alone, bringing the year-to-date cancelled total to 18 projects and 4,040 units.
“Prior to 2022, it was rare to see a deal fall through,” said David Ionico, partner at McHugh Whitmore law firm in Stoney Creek, Ont. “In recent years, it is unfortunately a common occurrence, and I refer failed deals to litigation on what seems like a weekly basis.”
Ionico said that reasons for failed deals vary, but most recently, they have been due to purchaser financing issues.
“Lenders seem to have gotten stricter with their requirements and are more cautious to lend,” Ionico said. “Additionally, appraisals are coming in much lower than expected at the time of purchase, resulting in purchasers not being able to obtain enough funds to close.”
Implications for agents
Unlike the average confirmation of co-operation form for the sale of existing homes, new developers typically have Realtors sign a document called an “Agreement to Co-operate.”
It’s a schedule outlining conditions for staggered commission payouts. For example, the first commission payment of one per cent is sent upon successful completion of the building’s roof. The second payout of one per cent is sent once the developer receives a mortgage commitment, and so forth. The condition criteria and commission percentages vary from developer to developer.
There is an important clause within this agreement that has become increasingly common: the repayment clause.
Also called a “clawback clause,” this condition allows developers to rescind commissions previously paid to Realtors should buyers be unable to close.
A poor understanding of terms may be hurting agents
Sam Hassaan, broker of record at Royal LePage Real Estate Services in Oakville, Ont., agrees that these clauses have become the “industry standard for most major developers.”
He said agents typically do not raise concerns about the clause – perhaps because they don’t fully comprehend them.
“A significant number of agents do sign these agreements without fully understanding the ramifications and financial risks when the deal does not close,” said Hassaan.
While Realtors may get the short end of the proverbial stick with clawback clauses, developers include this clause for a reason.
“Put simply, a lot of deals aren’t closing and, as with other types of real estate transactions, the expectation is that the non-defaulting party won’t pay any commissions if the deal doesn’t close through no fault of their own,” said Ionico. “These clauses also incentivize co-operating agents to bring purchasers that are likely to close.”
‘Read before you sign’
Hassaan notes that repayment clause enforcement has become prominent in the current market, particularly in areas with high volumes of new development such as the Greater Toronto Area. While Hassaan advises Realtors to try and negotiate this clawback clause, Ionico states negotiating this clause would be dependent on the developer.
“I’m not sure my builder clients would negotiate this, given the higher risk of deals falling through these days,” said Ionico.
And while Ionico has seen agents try to contest repayment clauses, it usually doesn’t go far.
“I’ve seen agents dispute clawback clauses but never with a legal justification to do so. Assuming the clause is properly drafted, its enforceability is undisputable.”
Knowledge is the best defense for Realtors who want to delve into the world of new development sales. While Ontario’s Real Estate Salesperson Program includes sessions on new constructions, some brokerages also offer pre-con training.
As an extra precaution, Royal LePage Real Estate Services also implemented a brokerage policy for pre-construction deals. If multiple commission installments are woven into a deal, their policy is to hold the funds until the deal’s final closing. While this could mean a significant delay in commission payout, it protects the Realtor and brokerage from being unable to pay back the developer if the deal fails to close.
Realtors can take similar measures to protect their finances should their brokerages not have such policies in place. This could be as simple as setting aside your first or second installment in a separate account for safekeeping until the final payout is complete and the deal successfully closed.
For Ionico, the best advice he gives is simple: “Read before you sign,” he said. “If anything is unclear, it’s best to have a lawyer look at it.”
Having stepped into the world of real estate as a receptionist over a decade ago, Diana worked in the industry at different capacities and climbed the ladder since. She has supported Realtors as a front desk assistant, organized incoming paperwork as a deals admin, and processed closings as a head-office accountant. Working at several brokerages gave her insight into their inner workings, from recruiting, social media marketing, commission payouts, and everything in between.
The face of real estate is often portrayed as a confident Realtor, but the hardworking cogs within the real estate machine — office admins, assistants, receptionists, and clerks — are often forgotten. Using her real estate and journalism experience, Diana sheds light on everything going on behind the scenes, while keeping the machine humming along.