What is a Breach of Real Estate Contract?

07 Dec What is a Breach of Real Estate Contract?

Buying or selling a home is exciting but also opens home buyers and sellers up to possible legal issues. The binding nature of contracts becomes very meaningful during the real estate process. Because of this, home buyers and sellers should understand what a breach of real estate contract is and why it is important to avoid one.

Understanding Contract Breaches

A breach of real estate contract can occur during the period when buyers and/or sellers are meeting the contingencies outlined in the contract. Although most property closings are completed with little issue, if a breach occurs it can greatly change anticipated outcomes. Therefore it is very important home buyers and sellers review the contract with their real estate lawyer so they understand what might constitute a breach. It is not uncommon for buyers or sellers to inadvertently breach the contract because they did not realize something violates the agreement.

Material and Non-Material Breaches

In general, there are two possible types of breaches:

Material Breach: A material breach impacts the non-breaching party, resulting in failure for them to get what was outlined as part of the bargain in the contract. In the case of material breaches, the non-breaching party has the right not to complete their side of the responsibilities outlined in the contract. They can also sue the breaching party or possibly seek what is called specific performance.

Non-Material Breach: A non-material breach is a violation that is minor, and the non-breaching party can request monetary compensation for damages.

What is Specific Performance?

Specific performance is a court remedy instructing the breaching party to take action to resolve the breach where the payment of money won’t adequately cover the non breaching party’s loss. This would be actions such as transferring ownership of the property.

Specific action is very rare. This is because in most cases the court can easily determine monetary damages by looking at the amount due and the value of the property when the contract breach occurred.

When Sellers Breach a Real Estate Contract

The most common seller breach is based on a refusal to close. This could be because they change their mind about selling, but it can also be driven by the desire to take a more lucrative offer. In these cases, specific performance is required to force the seller to honor the agreement. Homebuyers might also sue for further damages such as all the expenses incurred when they entered into the agreement, including inspection costs, legal costs, interest, and consequential damages.

When Buyers Breach a Real Estate Contract

 Keep in mind the contract is binding to both the seller and the home buyer. Therefore the buyer can also breach the contract and fail to deliver on the agreed-to terms. A good example of this would be not following through with a closing. In this case, it would be the seller who would be entitled to seek compensation in the form of monetary damages to cover interest and/or consequential damages resulting from the sale falling through.

Avoiding Breaches

A real estate attorney can help you avoid a real estate breach of contract. Not only will they make sure you understand what you are agreeing to, but they will also protect you from possible contract breaches such as home inspection, financing, home sale contingency deadlines, and more. 

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