What to Do When a Buyer Breaches a Real Estate Contract

A buyer’s breach of a real estate contract can be analyzed under many of the same criteria as a breach by the seller. However, there are some important differences between the two cases.  The main difference is a non-breaching seller can usually find another buyer more easily than a non-breaching buyer can find an acceptable replacement property.  This is because every piece of real estate is fundamentally unique.

Establishing a Breach by the Buyer

Before the seller can seek a remedy, the seller must establish that a valid contract existed, and that the buyer breached the contract. The usual contract requirements of mutual consent and specificity of terms apply, as does Arizona’s Statue of Frauds, which requires real estate purchase contracts be in writing.

A buyer may have a number of “outs” or contingencies under the contract. If the contract is dependent on the buyer obtaining financing, and buyer is unable to do so despite a good faith effort, they may be entitled to back out of the deal. In this case, the seller would be without a remedy.

Remedies for a Breach by the Buyer

Monetary damages are usually available to the seller.  This may include keeping the buyer’s earnest money deposit and terminating the contract, but some contracts limit the remedy to earnest money if it is retained, so the seller should carefully evaluate whether to exercise such an option. A contract may also provide for various forms of liquidated damages that are agreed upon ahead of time. The remedy of specific performance is rarely given to sellers because monetary damages will usually provide an adequate remedy, and equitable remedies (such as specific performance ) are only used in cases where there is a lack of remedy at law.

If the seller can sell the property to another party for a price that is equal to or higher than what the defaulting buyer agreed to, the seller may wish to either negotiate a settlement or just move on because it will be difficult for them to prove monetary damages. For real estate that is depreciating, the seller may be able to claim damages for the difference in the sale price to the first and second buyer, as well as additional expenses related to the sale.

The seller may also wish to simply cancel the contract after a buyer’s breach. All cancellation provisions in the contract should be strictly followed to prevent the buyer from later attempting to fulfill their obligations and perform under the contract.

Chernoff Law handles business and real estate litigation matters, including disagreements arising out of the purchase or sale of real estate in Arizona. Contact us to discuss your case with an experienced real estate attorney.