Real Estate: What Is a Breach of Contract and What Are the Remedies?

For most people, selling and buying real estate will be their most complicated experience with contracts. There are many moving parts: home loans, escrow, title transfers, easements, and more. 

Thankfully, the process is so common that for most people, it will go relatively smoothly (even if it is frustrating at the moment), and the buyer and seller can part ways amicably and with no need for future interaction. 

That is not always the case, however. Sometimes the deal breaks down or if it does go through, one party believes the other was dishonest about key aspects. In these cases, there may have been a breach of contract, and if so, the injured party likely has legal remedies.

Breach of Contract in Real Estate

A breach of contract occurs when one or more parties fail to fulfill their obligations under the agreement. 

Here are some of the most common types of breach of contract in real estate transactions.

The Buyer Backs Out

It’s not uncommon for a buyer to back out of the deal. 

Often it’s because they could not obtain financing for the purchase, or the deal was contingent on the sale of their old home, and they were unable to sell it in time. 

Other times the buyer simply changes their mind and walks away. Depending on the terms of the agreement and timeline of events, any of these may constitute a breach.

The Seller Backs Out

Less common is when the seller backs out of the deal. Typically, this happens when the seller has decided against selling the home or received a better offer from another buyer.

Failure to Disclose Facts or Defects

The seller has a contractual and legal duty to disclose any material facts that affect the property’s value. This can be anything from mold to electrical problems. The information must be something the seller knows or should have known about but that would not have been evident to the buyer.

Remedies for Breach of Contract in Real Estate Deals

Where a contract has been breached, the injured party may have a legal remedy. Here are the three most common remedies for breach of contract in a real estate deal.

Retaining Earnest Money

Earnest money is a deposit (typically 5-10% of the purchase price) put down by the buyer to show they are serious and to get the seller to take the property off the market. 

If the buyer simply changes their mind about the purchase, the seller will generally be able to keep this earnest money. However, if the buyer backs out because they cannot secure a loan, it will depend on the contract terms and whether they provided notice in time.

Monetary Damages

The most common remedy for any breach of contract is monetary damages. The purpose of monetary damages is not to punish the party who breached the contract but to put the injured party in the same position they would be in had the contract gone through properly. 

For example, if a buyer agrees to purchase a home for $200,000 but backs out of the deal and the seller is only able to sell later for $170,000, the seller may be entitled to the $30,000 difference in price plus other expenses incurred.

Specific Performance

Specific performance is a less common remedy where one party is ordered by the court to perform the terms of the contract. This might occur when a seller backs out of the deal and tries to sell to someone else at a higher price. 

The court may order the seller to complete the sale to the first buyer because the property is unique and monetary damages are insufficient to compensate the buyer.

Discuss Your Options With a Lawyer

If you’re involved in a real estate transaction and believe the other party has breached the contract, your first step should be to speak to an attorney. 

Our team has years of experience in these matters; we can evaluate your situation and develop a comprehensive plan for resolving the matter efficiently in your favor. 

Contact our office to schedule your consultation.

Written By

Hoffman & Forde, Attorneys at Law