Contracts are the most important part of deals in real estate transactions. The terms and conditions that both sides agree to follow are written down in these contracts. Whether you’re the seller or the buyer, following a contract can be your safety net to make sure that no one will take advantage of one another, as this is where the obligations of both parties are indicated.
But what is a breach of contract in real estate? In general, breach of contract refers to failure to perform the duties outlined in a real estate agreement, whether it involves payment issues, failure to transfer property ownership, or not meeting deadlines and conditions specified in the contract.
Breaches can range from minor issues, such as delays in closing, to major violations, like refusing to complete a property sale. It could lead to big problems, like losing money, losing deposits, or even going to court.
Let’s look at the different aspects of breaking a real estate contract and better understand real estate deals.
Types of Breach in Real Estate Contracts
There are different kinds of breaks that can happen in real estate deals, and each one has different effects.
Material breach: this occurs when one party fails to perform a significant aspect of the contract, affecting the core purpose of the agreement. For example, if a seller refuses to transfer the title of the property to the buyer after receiving payment, it would be considered a material breach.
Minor breach, which involves a less significant failure to fulfill contractual obligations. An example of a minor breach could be a slight delay in completing repairs before the closing date.
Both buyers and sellers need to know about the different types of breaks in real estate contracts in order to handle any problems that may come up during the transaction.
Legal Consequences for Breach
When you breach a real estate contract, there are several potential legal consequences you may face and one common consequence is having to pay damages to the innocent party. These damages are typically meant to compensate the non-breaching party for any financial losses they suffered due to the breach.
Contract dispute lawyer Richard M. Watts says specific performance may be asked for, which means the court can make you do what you agreed to do in the contract. You might also have to pay liquidated damages if the contract said that certain damages would be paid if the terms were broken.
A breach of a real estate contract could also cause the contract to end, which means you could lose any rights or benefits that come with it. You might also lose any deposits or earnest money you gave because of this closure.
Remedies for Breach of Contract
Upon breaching a real estate contract, various remedies may be pursued to address the violation and compensate the aggrieved party.
- Specified performance is a typical solution where the court tells the party breaking the contract to do what they agreed to do. In some cases, this is the only option because the contract is too specific or money losses aren’t enough.
- In order to make up for any financial losses brought on by the breach, the person who suffered damage may also seek damages in the form of money. Such damages may include real damages, consequential damages, or liquidated damages, depending on what the contract says.
- Another option is rescission, where the contract is canceled and both parties are restored to their pre-contract positions. Punitive fines may be given to bad actors who break the agreement to punish them for their actions.
Knowing these solutions can help you get through the time after a breach of real estate contract quickly.
Proving Breach in Real Estate
To establish a breach in a real estate contract, you must provide clear evidence of the party’s failure to fulfill their contractual obligations. This evidence could include written communication, such as emails or letters, that outline the agreed-upon terms and demonstrate where the breach occurred. Additionally, any relevant documents, like the signed contract itself, receipts, or invoices, can serve as valuable proof in demonstrating the breach.
Images, like photos of the property at the time of the claimed breach, can also be very convincing when showing that contractual obligations were not met. People who knew about the contract or were involved in the exchange may be able to testify in response to your questions.
Tips for Avoiding Breach
To prevent breaches in real estate contracts, consistently review and understand all terms and obligations outlined before signing. Before committing to any real estate agreement, take the time to carefully read through the contract. Pay close attention to key details such as the purchase price, financing terms, deadlines, and any contingencies that may impact the deal.
Communication is key to avoiding misunderstandings that could lead to breaches. Make sure all parties involved are on the same page regarding their responsibilities and expectations. If there are any uncertainties or ambiguities in the contract language, seek clarification from a real estate professional or legal advisor.
It is very important to keep conversations open and honest throughout the whole transaction process. Tell everyone about any changes or new information that might affect the deal. You can help avoid mistakes and breaches of your real estate contracts by being proactive and taking care of any possible problems right away.
Conclusion
Understanding breaches of real estate contracts and their implications is essential for protecting yourself and your investment. By familiarizing yourself with the different types of breaches, legal consequences, and remedies available, you can navigate real estate transactions more effectively and mitigate potential risks.
