The closing is the meeting between the buyer and the seller where all remaining documents related to the sale are signed. The deed to the house is transferred from the seller to the buyer. Title insurance is paid, the buyer signs the mortgage papers, and possible transfer taxes are paid to the state. Additionally, the buyer will pay the seller for miscellaneous expenses, such as appliances or furniture that had been previously agreed upon and any real estate taxes that the seller had prepaid.
When parties enter into a sale agreement on building contracts, that agreement is binding. The agreement typically specifies the purchase price, closing date, and other relevant facts about the buyer, the seller, and the property. Like other legally binding contracts, if one of the parties refuses to close on the deal according to its terms, the other party may seek damages for breach of contract.
What Is A Remedy?
A remedy is a court-ordered means of enforcing one party’s rights or redressing a wrong committed by another party. Typically, a sales contract to purchase a building drafted by a lawyer defines the available remedies in the event of default by either the buyer or seller.
Once a contract is formed, the buyer and seller agree to perform specific obligations to “close” it (i.e., complete the deal). Refusing to close on a sales contract is an example of a default. The injured party may then bring a lawsuit seeking a remedy for its injuries. Remedies may be sought in both commercial and residential purchase-sale agreements.
What Remedies Are Available If The Buyer Defaults By Refusing To Close?
If the buyer of a building defaults, the remedies often available to the seller include:
- Liquidated Damages: In most building purchase contracts, buyers will put down a deposit on the building they wish to purchase. Such contracts often allow the seller to retain this deposit as liquidated damages (i.e., predetermined damages assessed against one party if it breaches the contract) in the event of a buyer’s default.
- Lost Profits: If a buyer defaults, the seller can sue for the difference in money damages incurred due to failure to close the contract. Lost profits are calculated as the difference between the contract price and the lower fair market price (assuming it is lower than the contract price).
- For example, suppose the contract specifies that the buyer pays $750,000, but the property’s fair market value is only $700,000. The seller could try to get a judgment awarding the $50,000 in lost profit. It is highly uncommon for a court to order a buyer to complete the purchase by paying the entire purchase price.
What Remedies Are Available If The Seller Defaults By Refusing To Close?
If the seller of a building defaults, the remedies available to the buyer include:
- Specific Performance: If the seller refuses to complete the transaction, the buyer can seek “specific performance.” Specific performance is an equitable remedy. Courts require the seller to go through with the sale. Specific damages are an available remedy since real estate is considered unique and one of a kind. Courts often grant this remedy when sellers refuse to close because monetary damages are not sufficient to compensate a buyer for suffering the loss of the property.
- If there is nothing in the contract dealing with default, then in most states, if the seller defaults, the buyer can go to court and seek an order of specific performance. This order commands the seller, under penalty of being held in contempt of court, to transfer the property to the buyer upon payment of the agreed purchase price.
- Monetary Damages: Assuming that the property’s fair market value is higher than the agreed-upon contract price, the buyer can sue for the difference between the contract price and the fair market price. For example, if the contract has a purchase price of $500,000 and you can show its fair market value is $550,000, a judge may award you the $50,000 difference. Courts may order sellers to pay for any money the buyer lost due to the failed transaction, including mortgage application fees or appraisal and inspection costs. The seller may also have to pay the buyer the cost of the difference between the accepted price on the property and the fair market value.
- For instance, if the property is worth $300,000 and the agreement was for the buyer to buy the property for $290,000, the seller may be required to pay the buyer this $10,000 difference.
- Consequential Damages: The buyer may also be able to recover consequential damages (i.e., costs incurred as a consequence of the buyer entering into the contract) such as mortgage application fees and appraisal fees paid in reliance on the contract.
Buyer‘s Breach of Contract
If the buyer is unwilling to go through the transaction, normally, monetary damages are the only remedy granted to the seller. Courts are reluctant to require specific performance from the buyer and force the other party to buy the property.
The buyer will be required to pay for all actual losses, and if the fair market value is worth less than the accepted buyer’s offer, the buyer may have to pay the difference between fair market value and the offered price.
Can I Use Contract Contingencies?
A contract may include an addendum stating that the seller can back out of the deal if they cannot find another place to live. Attorneys should go over all real estate contracts, even if a state doesn’t require it. Buyers will not want to find out that the seller still hasn’t found a new home on the day the closing was scheduled.
Other contingencies in a contract may allow the seller to back out without penalty. These contingencies include a buyer failing to obtain a mortgage within a specified period or the buyer demanding certain repairs, and the seller refusing to make them. Sellers have the right after receiving a home inspection report and the buyer’s request to fix certain items or to cancel the contract.
Paying the Real Estate Agent
Buyers are not the only people the seller left holding the bag in situations where they refuse to close on a real estate deal. The seller’s real estate agent did the work they were supposed to do and found a buyer for the home. The seller will likely have to pay the real estate agent the commission on the property, which can run into a substantial amount of money.
Do I Need An Attorney If The Other Party In A Building Sales Contract Is Refusing To Close?
If a buyer or seller defaults on his obligations under a building sales contract, an experienced contract attorney can determine what remedies are available to you and the likelihood of recovering damages. Additionally, an attorney’s assistance is beneficial when drafting such contracts because they can include clauses providing for remedies in the event of specific defaults.
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