When you enter into a purchase and sale agreement in a real estate transaction, that agreement is a binding contract. It typically outlines the purchase price, the information on a closing date and other relevant information about the buyer, the seller and the property. Like any other legally binding contract, if one of the parties to a purchase and sale agreement or other agreement to buy/sell real estate refuses to close on the transaction according to the terms in the contract, the other party may seek damages for breach.
Responding to a Breach
If one of the parties to a purchase/sale or other real estate agreement refuses to close on the transaction and facilitate the transfer of the real estate, the results of what will occur will vary depending on whether the parties actions are justified and depending on which party is breaching the agreement.
In some cases, contingency clauses will be included in the contract allowing either buyer or seller to walk away. For instance, the contract may require that the buyer secure financing or that the seller find a new home. All of these contingency clauses are called conditions precedent, and if a buyer doesn't get financing, the seller doesn't find his home or a contingency otherwise does or does not occur, then the parties can walk away from the transaction without penalty. In addition, sometimes some unexpected intervening event happens – like the house is destroyed in a fire. In certain cases, such as if the intervening event was an act of God, then the parties will not be required to go through with the transaction.
Outside of these justifications for breaching a purchase/sale or other real estate agreement, the party who is refusing to close will face various penalties for not following through with the transaction.
In many cases, if the seller is the one who is refusing to complete the transaction, the buyer can seek "specific performance." This is an equitable remedy in which the court requires the seller to actually go through with the sale; it is available since real estate is one of a kind and since it is often believed by the courts that monetary damages are not sufficient to compensate a buyer for losing out on a property.
Specific performance is not the only remedy, however, and sometimes the courts will simply order the seller to pay for any money the buyer lost as a result of the failed transaction, including mortgage application fees or appraisal and inspection costs. The seller may also need 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 $100,000 and the agreement was for the buyer to buy the property for $90,000, then the seller may have to pay the buyer this $10,000 difference.
If the buyer is the one who is unwilling to go through with the transaction, monetary damages are normally the only remedy because courts generally will not require specific performance to make the buyer go through with the transaction. The buyer will have 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.