Sellers are usually eager to close on their properties and move on. But sometimes someone will try to back out of a seller’s contract—perhaps because they got cold feet, got a better offer, or experienced a life-changing circumstance.
When you represent a buyer, your client will naturally look to you to explain how to handle a situation where a seller breaches a real estate contract. Read on for some important things to consider if you encounter a breach of real estate contract by a seller.
Was There Really a Contract Default?
Before you start looking for remedies for a breach of real estate contract by a seller, make sure the seller actually defaulted. Some things to keep in mind:
- Many contracts include some legal ways—known as contingencies—out of an agreement with zero consequences.
- These stipulations are designed to prevent a buyer from suing for breach of contract (e.g., if both parties agreed the sale was contingent on the seller finding a new house to buy in the contract).
- If the seller has made a good-faith effort and has not been able to find a home, they’re within their rights to cancel a contract.
- In this case, you and the buyer have no legal basis to complain or sue. That’s just one reason why it’s important to thoroughly read a seller’s contract before you sign.
Can a Buyer Sue a Seller for a Real Estate Contract Breach?
If a seller is actually breaching a contract and the buyer can prove they’ve been financially damaged, the buyer could sue. However, the amount the buyer can sue for depends on the law in their state.
If the seller can show they acted in good faith, and the buyer can’t prove you were financially affected, they may only be entitled to their earnest money deposit along with interest and reasonable expenses such as:
- The cost of a survey
- Title examination
- Attorney fees
If the buyer can show the seller acted in bad faith, your state may let you seek additional damages. It’s generally best to consult a real estate attorney to learn your buyer’s rights and options in case of a contract default.
What if There Is No Seller’s Contract?
If there is no seller’s contract, or the contract turns out to be unenforceable or invalid, you’re probably within your rights to terminate the agreement and recover—in full—any payments you made to the seller.
When both the buyer and seller agree to end an agreement, the buyer is typically allowed to recover the money that’s been paid, even if the contract says it’ll be forfeited in the event that the contract is not performed. Again, always confirm this with a real estate attorney.
What Does It Mean to Demand Specific Performance?
If a seller is able but refuses to “perform,” meaning transfer the home to your client, you can bring legal action for “specific performance.” This simply means seeking a court order forcing the seller to sell the property as originally planned.
More specifically, the order would force the seller to sell the home according to the terms of the contract, instead of merely compensating the buyer monetarily for breach of real estate contract by seller.
It’s important to remember that:
- Specific performance is up to the court’s discretion and only considered appropriate when the purchase agreement unequivocally spells out essential elements of the sale.
- To seek specific performance, buyers must also be ready and able to fulfill their part of the bargain.
- If the contract gives the seller unconditional rights to cancel, specific performance is probably off the table. Courts usually hesitate to enforce specific performance, particularly if the seller plans to continue living in the home.
- On the other hand, if the seller breaches the real estate contract in response to a better offer, a court is more likely to force a homeowner to sell according to the terms of the original contract.
When in Doubt, Lawyer Up
Now you know the basics of what happens if a seller breaches a contract. The bottom line is that real estate contracts can be tricky, and you should always consult with legal experts when in doubt.
While navigating contract complexities, don't overlook ways to protect your clients after closing. A real estate home warranty from 2-10 Home Buyers Warranty can provide peace of mind and demonstrate your commitment to their long-term satisfaction, even when the transaction itself hits bumps along the way.
