What to Do When a Seller Breaches a Real Estate Contract | 2-10 Blog

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Breach of Contract by Seller: What Can Buyers Do?

In most instances, sellers are eager to close on their properties and move on. Sometimes, however, someone will try to back out of a seller’s contract, either because they have cold feet, received a superior offer, or experienced a life-changing circumstance that makes selling problematic. As a buyer’s real estate agent, your client will expect you to explain how to best handle this tricky situation. Here’s what you need to know.

Did They Really Default?

Before you start looking for remedies for a broken deal, you need to make sure the seller really defaulted. Most contracts include some legal ways out of an agreement with zero consequences. Known as contingencies, these stipulations prevent a buyer from suing for breach of contract. For example, 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 are perfectly within their rights to cancel a contract. In this case, you and the buyer would have no legal basis to complain or sue. This is just one reason why it’s so important to thoroughly read a seller’s contract before you agree to sign.

When You Can Sue

If a seller is actually breaching a contract and you can prove you have been financially damaged, you could sue. However, the amount you can sue for depends on the law in your individual state. If the seller can show they acted in good faith and you cannot prove you were financially affected, you may only be entitled to your earnest money deposit, along with interest and reasonable expenses, such as the cost of a survey, title examination and attorney’s fees.

With that said, if you can show the seller acted in bad faith, your state may allow you to seek additional damages. Because laws can vary by location, it’s generally best to consult a real estate attorney to learn your rights and available options.

What if There Is No Contract?

If there is no seller’s contract, or the contract turns out to be unenforceable or invalid, you are likely 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 all purchase monies paid, even if the contract says these will be forfeited in the event that the contract is not performed. Again, you should consult a real estate attorney to confirm.

Demanding 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 that will force 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 you monetarily for the breach.

It’s important to remember that specific performance is up to the court’s discretion and only deemed appropriate when the purchase agreement spells out essential elements of the sale in unequivocal terms. To seek specific performance, buyers must also be ready and able to fulfill their part of the bargain.

If the contract allows the seller unconditional rights to cancel, specific performance is probably off the table. Courts are typically hesitant to enforce specific performance, particularly if the seller plans to continue living in the home. On the other hand, if the seller breached 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.

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