It is a situation that every real estate agent fears: a buyer could not close his new construction deal.
It was signed months, maybe even years ago, and the agent had already been partially paid. Those funds are long gone and have been used to run their businesses and their lives. Now the developer is demanding that money back in full.
It’s a reality that more real estate agents are having to deal with in a market where the number of failed new construction deals is increasing.
The numbers are bleak: Urban Nation reports Ten projects were canceled in the third quarter of 2025 alone, bringing the total number of canceled projects to date to 18 projects and 4,040 units.
“Before 2022, it was rare for a deal to fall through,” said David Ionico, a partner at law firm McHugh Whitmore in Stoney Creek, Ont. “It has unfortunately become a common occurrence in recent years, and I refer failed deals to lawsuits every week.”
Ionico said the reasons for failed deals vary, but most recently were due to buyer financing issues.
“It appears that lenders have become stricter in their requirements and more cautious in granting loans,” Ionico said. “Additionally, appraisals are coming in much lower than expected at the time of purchase, preventing buyers from obtaining enough cash to close.”
Implications for agents
Unlike the average partnership form for the sale of existing homes, new developers typically have real estate agents sign a document called an “Agreement to Collaborate.”
It is a schedule of the terms and conditions for staggered commission payouts. For example, the first one percent commission payment will be sent upon successful completion of the building’s roof. The second one percent payout is sent once the developer receives a mortgage commitment, and so on. The condition criteria and commission percentages vary from developer to developer.
There is one important clause in this agreement that has become increasingly common: the refund clause.
Also called a “clawback clause,” this condition allows developers to withdraw commissions previously paid to agents if buyers are unable to close.
Poor understanding of terms can hurt officers
Sam Hassaan, a broker with Royal LePage Real Estate Services in Oakville, Ontario, agrees that these clauses have become the “industry standard for most major developers.”
He said officers typically don’t raise concerns about the clause — perhaps because they don’t fully understand it.
“A significant number of agents sign these agreements without fully understanding the consequences and financial risks if the deal does not close,” Hassaan said.
While real estate agents may get the short end of the stick with clawback clauses, developers include this clause for a reason.
“Simply put, many deals do not close and, as with other types of real estate transactions, the expectation is that the non-defaulting party will not pay a commission if the deal does not close through no fault of their own,” Ionico said. “These clauses also incentivize cooperating agents to attract buyers who are likely to close.”
‘Read before you sign’
Hassaan notes that the enforcement of refund clauses has become prominent in today’s market, especially in areas with a lot of new development, such as the Greater Toronto Area. While Hassaan advises real estate agents to try to negotiate this clawback clause, Ionico states that negotiating this clause depends on the developer.
“I’m not sure my construction clients would negotiate this, given the greater risk of deals going bad these days,” Ionico said.
And while Ionico has seen agents try to challenge refund clauses, it usually doesn’t get very far.
“I’ve seen agents challenge clawback clauses, but never with a legal justification for doing so. Assuming the clause is drafted properly, its enforceability is beyond question.”
Knowledge is the best defense for real estate agents who want to delve into the world of selling new construction projects. While Ontario’s real estate salesperson Program includes sessions on new construction, some agents also offer pre-con training.
As an added precaution, Royal LePage Real Estate Services also implemented a pre-construction agreement brokerage policy. If multiple commission terms are woven into a deal, their policy is to hold the money until the final closing of the deal. While this could mean a significant delay in the commission payout, it protects the agent and brokerage from being unable to reimburse the developer if the deal does not close.
Brokers can take similar steps to protect their finances if their brokers do not have such policies in place. This can be as simple as setting aside your first or second installment in a separate account for safekeeping until the final payout is completed and the deal has successfully closed.
For Ionico, the best advice he gives is simple: “Read before you sign,” he said. “If something is unclear, it is best to have a lawyer look at it.”
Diana entered the real estate world as a receptionist over ten years ago and worked in various positions in the sector and has since climbed the ladder. She has supported Realtors as a front desk clerk, organized incoming paperwork as a deals manager, and processed closings as an accountant in the corporate office. Working at various 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 agent, but the hard-working cogs within the real estate machine – office managers, assistants, receptionists and clerks – are often forgotten. With her real estate and journalistic experience, Diana sheds light on everything that happens behind the scenes, while keeping the machine humming.
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