What is Breach of Contract in Real Estate?

When two parties agree to make a real estate transaction, the process usually starts with a written contract. Both parties enter into the agreement under certain conditions and proceed toward executing the deal within a certain time period, usually 30-45 days from signing the contract to finalizing the transaction at “closing.”

If one side changes their mind or otherwise pulls out of the deal, they are in breach of contract—and they are subject to being sued by the aggrieved party in order to set things right.

Why Does This Happen?

Both buyer and seller are obligated to make every effort to execute the terms of the agreement. Sometimes that proves difficult. Other times one or the other of the parties simply withdraws from the deal.

In some cases, the seller gets a better offer and attempts to drop the first agreement in order to pursue the new deal or the buyer gets cold feet and decides to renege on their offer to buy the property. More commonly, however, breaches of real estate contract are due to logistical challenges. For example, the seller may be unable to offer clear title on the property or the buyer may be unable to secure a mortgage to make the purchase.

What Is in the Contract?

The contract for a real estate purchase agreement should contain specific terms relating to the property, price, and timeline for the transaction. The contract should contain the following:

Address of the property, or adequate legal description

Purchase price

Closing date, or anticipated term by which the transaction will be executed

Date of possession transfer (or move-in date)

Specific items to be included in the sale, such as fixtures or appliances

Specific items not to be included in the sale

Amount and terms relating to a good-faith deposit

A promise of clear title

Contingencies in the Contract

It can be useful to include certain conditions in your contract to address the possibility of foreseeable obstacles common to executing a property purchase. Some of these hurdles are:

Home inspection

Financing

Buyer’s ability to sell other house

Seller’s finding another house

What Can the Aggrieved Party Do?

If a breach of contract occurs, the non-breaching party can get out of the contract, adjust the contract, ignore the breach, or sue. It is not uncommon for the aggrieved party to sue for additional monetary damages, over and above the good-faith deposit (or return thereof). In some cases, the non-breaching party may file a lawsuit to push through the sale.

The contract may limit the dispute-resolution process to arbitration, mediation, or small claims court.

Otherwise, the case may be heard in civil court.