Spring is a popular time for buying and selling homes, but the increased competition in the real estate market can lead to hasty decisions and unexpected contractual issues. Whether you’re a buyer eager to move into your dream home or a seller juggling multiple offers, it’s important to know how to avoid costly breaches of contract. This post outlines how buyers and sellers can avoid breaching their contracts, and what happens if a contract is violated.

What is a breach of contract in real estate?

A breach of contract occurs when a party fails to perform what they agreed to do (or not do) in a contract. In real estate, breaches typically occur when a buyer or seller is unwilling or unable to proceed with the transaction without legal justification.

What happens if a buyer breaches a contract?

If a buyer of real estate breaches a contract, the most common result is that they forfeit any deposits they’ve paid up to the time of the breach. This is known as the doctrine of “liquidated damages,” and in Massachusetts, most real estate contracts include this clause. If this language is included in the contract, then the seller likely cannot bring legal action for additional damages against a buyer who changes their mind or otherwise violates the contract.

However, there are often disputes between the buyer and seller over whether a breach of contract has actually occurred. In these cases, the buyer and seller frequently engage in negotiations, and the parties may agree to a partial forfeiture of the deposit in order to avoid lengthy legal battles. Most of the time, the agent holding the deposit cannot release it without written consent from both parties, which can be a challenge if there’s a disagreement about whether a breach happened.

How can a buyer avoid breaching a contract?

Some tips to help buyers of real estate avoid breaching a contract include:

• Carefully review both the offer and the purchase and sale agreement and make sure you understand your obligations as the buyer
• Learn the lingo. For example, “marketable title” is a subjective term, and reasonable minds can differ when it comes to interpreting the title to a property
• Pay attention to key dates. Missing financing, inspection, and other contingency deadlines could cause a breach

What happens if a seller breaches a contract?

A breach of contract by a seller is more complicated than a breach by a buyer because the doctrine of liquidated damages does not apply. Therefore, the buyer has more options available to pursue legal action against the seller. Depending on the contract, the buyer has options to request a return of their deposit from the seller (which can prevent the headache of a protracted legal battle), request arbitration or mediation, or bring a lawsuit against the seller for “specific

performance” (requiring the seller to go through with the sale) or other damages. Because of the costs associated with these things, especially lawsuits, many buyers and sellers will choose to negotiate among themselves and agree on a solution.

How can a seller avoid breaching a contract?

To avoid violating a contract, a seller should:

• Be sure that you are ready to sell your property and will be able to move out by the closing date
• Understand the provisions of the offer and the purchase and sale agreement and make sure that all statements and representations are true
• Prepare for all closing requirements and make sure that you have all documentation, like smoke certificates, 6D certifications (for condominiums), mortgage payoffs, etc. ready in advance of closing

Conclusion

Spring’s bustling real estate market is an exciting time to buy or sell your property, but the competitive market can also bring potential pitfalls if contracts aren’t carefully managed. Being informed, staying organized, and communicating clearly can help avoid breach of contract. An experienced real estate attorney can help protect your interests and keep your transaction on track. If you are interested in learning more about how you can avoid a contract breach in real estate transactions, contact Matt Roberts at Ligris + Associates PC.

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