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Breaches, checks and balances of real estate contracts

On Behalf of | Apr 13, 2020 | Firm News |

When a buyer makes an offer on a property to a seller, the seller accepts the offer, and they negotiate any further considerations, they have all three components of a legally binding real estate contract. 

After buyers and sellers accept the written real estate purchase agreement, if either back out or do not comply with any outlined portion of the deal, they “breach the contract.” 

How could a buyer or seller breach a real estate contract? 

Purchasing and selling real estate is a complex process that often involves several separate transactions, and there are a lot of ways that either party could fail to meet the obligations. FindLaw gives several general examples, which include: 

  • The seller fails to disclose problems with the house 
  • The seller does not handle or provide the property deed correctly 
  • The purchaser cannot sell the existing home and must forfeit the purchase contract on the new home 
  • The purchaser does not get approval for a mortgage before closing on the property 

It is possible to inadvertently omit items from the contract and a virtually infinite number of unforeseen factors that might arise. Fortunately, there are systemic checks and balances to protect each party’s interests when buying or selling. 

What is an earnest money deposit? 

According to National Juris University, the home-buyers almost always pay a deposit when they sign the deal, called earnest money. At closing time, it will calculate into the final cost of the house. Earnest money has two valuable purposes — first, it shows buyer intent to purchase the dwelling; second, it acts as a transaction security deposit. 

What is a contingency clause? 

There are often contingency clauses in the contract that allow the parties to cancel the transaction legally. Depending on the provisions, there are still recourses, namely, the earnest money. When sellers legitimately cannot complete the deal and legally cancel the agreement, they will generally return the deposit to the purchaser. Yet, when buyers breach the contract before closing, they typically forfeit the earnest money unless they have cause. When deals fall through, and participants cannot agree on who should keep the deposit, judges can hear the matter during breach of contract litigation.