What Is a Breach of Contract in Real Estate?

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The purchase of a home is accomplished by the buyer making an offer to the seller and the seller accepting the offer. Legally, this is considered a real estate contract. The three legal requirements for all contracts are an offer, acceptance and consideration. Once those three elements are in place there is a legally binding contract that can be enforced under the law. If one party to the contract does not fulfill her obligations, it is considered a breach of the real estate contract.

Common Terms

  • While a real estate contract is a unique document that may include terms specific only to that transaction, common terms are found in almost all real estate contracts. Among those terms are the purchase price, a description of the property, the date of closing and possession of the property, items included or excluded in the sale, warranties and guarantees and details regarding who will pay fees and costs associated with the sale.

Seller Breach

  • A seller may breach the contract by not fulfilling any of the agreed upon terms in the contract. Common examples of a seller breach include failure to provide a clear title to the property, failure to make required repairs for the property to pass inspection or failure to vacate the property before the agreed upon date of possession.

Buyer Breach

  • A buyer may breach a real estate contract in a variety of ways as well. The most common buyer breach is failure to obtain adequate financing before the closing date. Most real estate contracts are predicated on the buyers ability to obtain financing. A buyer may also breach the contract if he is unable to sell his current home before closing on the new home and therefore cannot go through with the purchase.

Remedies

  • Real estate contracts are generally governed by state law. As a rule, a real estate contract will have a choice of law provision that indicates which state's law will govern any disputes. The contract may also specify that the parties must submit to arbitration or mediation before seeking remedy in a court of law in the case of a dispute. Specific performance -- forcing the parties to complete the contract -- is rarely ordered by a court. If the dispute cannot be remedied through arbitration or mediation and the contract is terminated, then monetary damages are usually awarded to the injured party.

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