A real estate purchase agreement or contract of sale contains many terms and conditions of sale. If the seller or buyer fails to comply with the terms or conditions, such as the seller failing to provide clear title to the property, that party is said to have breached or defaulted on the agreement, and the other party may have a legal claim against the breaching party. If one of the parties fails to meet a contingency of the contract, such as the buyer failing to obtain financing, the parties will be released from the contract. If there is a dispute between the parties, they must use the dispute resolution process indicated in the contract, which may require the parties to resolve the dispute without going to court.

Terms and Conditions

Purchase agreements and contracts of sale contain many terms and conditions that the parties have agreed to meet, such as:

  • The purchase price
  • The date the sale will be finalized ("closed") and the date the buyer will move in
  • Items to be included in the sale, such as carpeting, lighting fixtures, appliances and so forth
  • Items not included in the sale
  • A legal description of the property
  • A guarantee that the seller will provide clear title to the home, through an abstract of title, certificate of title or a title insurance policy
  • A provision that the seller is responsible for paying house-related expenses through the closing date

If the party who is responsible for complying with the specific term or condition fails to comply, that party has breached or defaulted on the contract. For instance, if the seller fails to provide an abstract of title showing clear title to the property, the seller has breached the agreement. Also, if the seller takes lighting fixtures which he had agreed to leave, the seller has breached the agreement. The buyer can agree to a modification of the contract as to the title or the lighting fixtures and the price, or the buyer can offer to perform under the contract and then file a claim against the seller for breach of contract.

If the parties can't agree on how to resolve the matter, the parties must use the dispute resolution process if one has been included in the contract. Usually, this is arbitration, mediation or small claims court. Such alternative methods for resolving disputes are usually less costly and more efficient than filing a traditional lawsuit. The parties submit the matter to the arbitrator, mediator, or judge, and that person decides which party breached the contract. Sales contracts often provide for liquidated damages if one party or the other breaches the contract-this means that the sales contract provides that should there be a breach of contract, the damages to the party not in breach of contract will be for a set amount of money, which is often the amount of the buyer's deposit or earnest money.

Contingencies

Purchase agreements and contracts of sale typically contain several contingencies that must be met in order for the sale to proceed. These contingencies can include:

  • A satisfactory inspection report for the property
  • The buyer getting a mortgage or other financing
  • The buyer selling his current house

If the contingencies of sale are not met, the buyer can withdraw his offer and get a refund of his deposit. For example, if the buyer can't obtain financing as described in the sales contract, for example, a loan for a specified amount and interest rate within a set time period, the contingency of the buyer obtaining specified financing has not been met and the buyer can withdraw his offer. The seller is then supposed to refund the buyer's deposit.

If there is a dispute between the parties on the matter of contingencies, the parties must use the dispute resolution process specified in the contract. The arbitrator, mediator or small claims court judge will decide the matter according to the provisions of the contract.

Dispute Resolution

Purchase agreements and contracts of sale often contain provisions specifying the kinds of dispute resolution that the parties agree to follow if they disagree on the performance of the sales contract. These kinds of dispute resolution can include:

  • Arbitration. This process involves the parties submitting their dispute to an individual, the arbitrator, who is not a court officer and who decides the matter; this alternative method to resolving a dispute is often required by the terms of the parties' contract. In "binding arbitration" the parties are bound by the arbitratration award and are not entitled to a court's review of arbitrator's decision, except under extremely limited circumstances.
  • Mediation. This is a process in which a third party guides disputing parties and helps them find a mutually agreeable solution to their problem. Mediators provide this service in many places and in various areas of law.
  • Small claims court. This is a division of a county court in most places, and it has authority over lawsuits in which the amount in dispute is less than a set figure, such as $ 3,000.

If the contract does not include dispute resolution provisions, the parties can agree to settle their dispute through arbitration or mediation, or they can file a lawsuit in civil court.

If you have any questions about disputes concerning a real estate purchase agreement or a contract of sale, contact a real estate attorney in your area.

Questions for Your Attorney

  • What happens if the seller of property fails to fulfill his promise to provide clear title to the property?
  • Can the seller require me to apply for financing from certain lenders in order to meet the financing contingency of the sales contract?
  • Is suing the seller over the return of my security deposit worth the costs and efforts of a lawsuit? If the matter can be settled in small claims court, am I allowed to have a lawyer help me?

Tagged as: Real Estate, Residential Real Estate, contract breach, sale contract