The buyer is paying with cash. Inspection period is over. There is an escrow deposit. What can I do if buyer decides not to close? I am concerned that buyer has changed his mind. The contract says that we go to mediation to resolve first. Contract says if buyer fails to close, he loses the escrow money. For example, if he contracted to buy at $300,000 and does not close. The house sells at $200,000 six months later, can we sue him for the $100,000 difference?
I am not a real estate lawyer…but we have been doing real estate investing for a long-time. I believe you will find the contract stipulates that the forfeiture of Escrow is considered liquidated damages. The Purchase & Sale contracts are state specific so your agent should be able to advise you. There is no chance you could sue the buyer for opportunity cost.
I am not a lawyer, I spent 12 years as a RE broker.
If you and your Buyer signed a contract you may be able to pursue them under contract law under “specific performance” provisions. Kinda like the Twitter vs Elon Musk thing that is going on right now.
But… it’s probably best to settle for the earnest money deposit and move on. Suits for specific performance in RE transactions are rare.
Next time you accept an offer remember… “more time to closing ALWAYS means LESS chance of closing.” A cash offer should close as soon as you can provide marketable title to the Buyer. An inspection should be cleared within a few days of the offer and it’s contingency removed ASAP.
In real estate “time is of the essence.”… always.
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Then that’s what happens. You most likely can’t force the buyer to perform (go through with the purchase), and can’t get the difference between buyer’s original offer and the ultimate sale price. But you may want to have the contract reviewed by an attorney in your state if it ends up going that way. I haven’t read the actual contract, and am not a real estate attorney in your state.
I read something here which interests me. I don’t see how a buyer could not be required to honor the terms of the contract. Maybe it’s not so smart, to make cash offers. Very hard to get out of those.
Keep in mind, the real estate agent is also going to get some of the forfeited escrow money if the buyer defaults.
2 to 3% of 5K = $150 max
The listing agreement says agent will get 25% of the escrow money if the buyer defaults.
Then that’s the agreed amount.
I trust you are asking your listing agent about the details of the delay. They should keep you informed of what’s going on with the Buyer. It’s not uncommon for a Seller to increase the EM deposit when the Buyer doesn’t meet the agreed performance checkpoints.
Real Estate contract statutes and case laws vary by states and given the sum of money at risk I think you should consult an attorney. in the state of jurisdiction.
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The OP is asking what if the buyer fails to close and there’s a crash? The question than is two fold, can the seller force the buyer to perform to the contract by state law and what’s the cost to do so? Litigation is expensive and the lawyers have a field day.
There’s a third issue: if the seller can force the buyer to close, can the cash buyer obtain financing if the buyer used a bridge loan to look like a “cash buyer” or if they otherwise spent the $$$ or made poor investment decisions?
It’s like a 100-to-1 shot. Contract law rides on the “good faith” actions of all the contractual participants. The Seller would have to prove that the Buyer entered into the contract “not in good faith.”
All the Buyer has to do is claim they performed as best they could.
Good to know. So liquidated damages are all that are allowed unless you can prove that it was bad faith.
Honesty is the essence of contract law. The contract is your legal word. Not unlike testifying under oath.
Claiming a future possible sale as a missed opportunity is like imagining what might have happened. The provable event is a non-sale. You would have a lot of difficulty proving in a court of law that a future event (a future sale) would be likely to happen and because of the cancelled sale could not happen.
All you have to work with is the promised sale. If the Seller can’t show malice or intent to deceive, they’ll have to settle for the EM $ as full compensation.
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All of this soubns like we should have gotten the earnest money when the first buyers for my m-i-l’s house didnt qualify for a mortgage…after entering the contract for sale, they expected us to provide a secondary loan, “but only for 6 months.” Then they would have the proceeds from a lawsuit to close it out. Oh, and they, with OUR realtor’s permission stole furniture. That did get returned when we made a huge stink about it.
Intent generally doesn’t matter if there is a clear breach of contract. If the purchase and sale agreement doesn’t limit damages to the earnest money, then there are two potential remedies under the laws of most states - recovery of all reasonably foreseeable damages flowing from the breach (most common) and specific performance (rare, generally only in cases where monetary damages do not provide adequate compensation because of the uniqueness of what is at stake). You should consult an attorney and ask as of what date damages would be measured - probably the date of the breach will govern. So if the price of the property has dropped, you would probably recover the difference between what the buyer agreed to pay and the market value on the date that they went into breach. This could get very expensive very fast if both sides have to pay lawyers, and experts to testify regarding damages. So check to see if there is an attorneys’ fees clause in the agreement which would require the losing party to pay the fees and costs of the prevailing party. You should always consider mediation with a former judge to try to work out a reasonable settlement before launching into litigation. Former judges can tell you pretty accurately what the likely result will be if you litigate, so might as well settle.
The key phrase in your post is “recovery of all reasonably foreseeable damages flowing from the breach.”
I don’t think you’ll find many instances where a court awarded a plaintiff the difference between some imagined future sale prevented by the breach of an agreement to purchase where the Buyer acted in good faith and failed to perform.
Exceptions might be in the field of commercial real estate where all players should be aware they are playing “heads-up-ball.” But the original poster was referring to a residential home sale.
I don’t know what state you’re in, but this is not an accurate description of the contract law in most states. First, intent is irrelevant to proving a breach of contract. Second, consequential damages are the norm - the benefit of your bargain, the difference between what you expected under the contract and what you got as a result of the breach. Here’s a good summary of MI law on a law firm website, which pretty representative of most states’ laws on contract breach: https://millerlawpc.com/6-remedies-breach-of-contract/
I don’t disagree with your point that, in general, a breach of a contract may not involve consideration of the reasons behind the non-performance of one of the parties. But as I mentioned before, the context of this thread is the sale of residential real estate to an owner/occupier.
I don’t think you will find any case(s) you can cite that involve an agreement to sell a residential real property to a Buyer/occupant where the Buyer acted in good faith but failed to close the sale and had to pay damages based on a post-breach sale for less money to another Buyer.
The site you provided ( https://millerlawpc.com/6-remedies-breach-of-contract/ ) does not list Residential Real Estate among it’s practice areas.
The legal firm knows real estate contract law.
Contract terms should be followed. Both parties are supposed to follow the terms of the contract. There are always options available in any contract when a party does not follow the terms of the contract. Why would a real estate contract only entitle you to escrow money if the buyer defaults? What if the seller purchased a house expecting (rightly so) for the buyer to close? If the buyer decides not to close, I would contact a real estate lawyer and find out what my options are then.