Buying or selling a home is one of the most significant financial moves many people make in their lives. That’s why having a solid contract in place is so crucial. It spells out all the key details, from the closing date to what happens if something goes wrong. But what happens if one party doesn't follow through? What if something gets overlooked or simply ignored? Let’s break down what a breach of contract looks like in real estate, what the consequences are, and how you can handle it if it happens to you.

What Is a Breach of Contract in Real Estate?

A breach of contract happens when one side fails to fulfill their part of the agreement. In real estate, this could be something small, like missing a deadline by a day or two, or something big that threatens to derail the whole deal. Here are some common examples:

• Missing the Closing Date: One of the most common breaches is when the buyer or seller fails to close on time, which can have a ripple effect on both parties’ plans.

• Hiding Property Problems: Sellers are supposed to be upfront about any major issues with the property—like a leaky roof or mold. If they don’t disclose these problems, it’s considered a breach.

• Financial Issues: If the buyer’s financing falls through, and they can't secure a loan by the agreed-upon date, this could be a breach.

• Not Completing Agreed Repairs: Sometimes, a seller promises to make specific repairs before closing. If they don't, that’s another breach.

Breaches like these can cause headaches and even throw a wrench in the whole deal. But don’t panic—there are ways to address it.

What Can You Do When a Contract Is Breached?

When a real estate contract is breached, the other party has a few options to resolve the issue. The right solution depends on how serious the breach is and what both parties are willing to negotiate.

1. Monetary Damages

Most of the time, the simplest remedy is monetary compensation. If one party incurs extra costs because of the breach, they can sue the other party to cover those expenses. For example, if a seller is forced to hold onto a property longer because the buyer didn’t close on time, the seller could seek damages to cover extra mortgage payments, taxes, or utility bills.

2. Specific Performance

In some cases, just getting compensated financially isn’t enough—especially when the property is unique or difficult to replace. This is where specific performance comes in. It’s a legal order that requires the breaching party to stick to the terms of the contract. For instance, if a seller suddenly tries to back out of a sale, the buyer can take them to court to force the sale to go through as originally agreed.

3. Cancel the Contract and Get a Refund

If the breach is severe enough, the injured party may choose to cancel the contract altogether. When this happens, any earnest money (the deposit made to show serious interest) is usually refunded to the buyer, and both sides can walk away from the deal. For example, if a buyer finds out the seller failed to disclose a major issue like a cracked foundation, the buyer might cancel the contract and get their deposit back.

4. Liquidated Damages

Sometimes, contracts will include an agreement for liquidated damages, which is basically a pre-determined penalty for breaking the contract. It’s common for real estate contracts to state that if the buyer breaches the deal, the seller gets to keep the earnest money as compensation.

Real-World Examples of Breaches (2024)

Let’s look at a few specific examples of breaches in real estate contracts to give you a better sense of how this can play out in real life:

• Late Closing: Imagine a buyer has everything lined up but their financing hits a snag, and they miss the closing date by a week. The seller, who already had plans to move into their new home, now faces extra mortgage payments and inconvenience. The seller could seek damages for the delay or agree to a new closing date if both parties want to move forward.

• Failure to Disclose Property Defects: Say a seller didn’t mention the home had a history of flooding in the basement. After the buyer moves in and discovers the issue, they could potentially sue the seller for the cost of repairs or even back out of the sale entirely, depending on the local laws and the severity of the problem.

• Unfinished Repairs: Let’s say the seller promised to repair the HVAC system before closing, but when the buyer does their final walkthrough, they realize the work hasn’t been done. The buyer could either demand that the seller complete the repairs or request a reduction in the sale price to cover the cost.

How to Avoid a Breach of Contract

To avoid a breach of contract—and the stress that comes with it—both buyers and sellers can take a few key steps:

• Clear Communication: Make sure every important detail is written down in the contract, and that both parties understand their responsibilities. From closing dates to repair promises, clarity is everything.

• Use Contingencies: Buyers should protect themselves by including contingency clauses in the contract, like having the sale depend on passing inspections or securing financing.

• Work With Experts: Having a seasoned real estate agent or attorney can help you catch potential issues before they turn into costly breaches. They’ll make sure the contract is solid and that everyone knows what’s expected.

Final Thoughts

Dealing with a breach of contract in a real estate transaction is never fun, but it doesn’t have to mean the deal is doomed. By understanding your rights and the legal remedies available, you can handle these situations with confidence. Whether you’re seeking damages, forcing the other party to stick to the contract, or choosing to walk away, knowing your options is key to protecting your interests.

As always, prevention is the best medicine. By being thorough, clear, and proactive in your contract, you can avoid many common issues and make your real estate transaction as smooth as possible.