Get An In-Home Evaluation

What Happens When a Buyer Breaches Their Contract?

Tuesday April 5, 2022


Rectangle Created with Sketch.

In any real estate transaction, a smooth process and successful result are the goals. Unfortunately, it doesn’t always work out that way—even when there’s a legally binding contract in place. Although it’s far from the most common outcome, there are times when a buyer can’t live up to their obligations. When that happens, it’s important to know what you can do about it—whichever side of the transaction you’re on.

Here’s what sellers and buyers should know about real estate contract breaches…

How buyer contract breaches happen

There are many ways that a buyer can breach their purchase agreement. One of the most common occurs when their mortgage financing falls through, leaving them unable to afford their prospective home. Of course, a buyer who has included a financing condition in their offer will be protected under these circumstances.

In some cases, a buyer is unable to sell their property before closing. Again, under these circumstances, they may find themselves suddenly unable to afford their new home. There are many situations that could prevent buyers from fulfilling their contract requirements—but a bit of planning can help prevent this outcome.

Buying a home can be a complicated process with a lot of paperwork. Here are a few fundamentals you should learn about before taking the plunge:

What sellers should know

When you accept a buyer’s bid, they’ll provide you with their earnest money deposit within 24 hours. This amount will be set out in their offer, but it’s typically around 5 per cent of their purchase price. If the buyer breaches your shared agreement, you may be able to walk away and hold onto this money. The circumstances under which you can do this will be specified in your contract (which is one of many reasons to ensure you fully understand what you’re signing).

If you believe you’re entitled to the deposit and the buyer disagrees, you have the option of taking legal action. Depending on the situation, you may also be able to sue a purchaser who breaches your contract for damages. An experienced real estate lawyer can help you understand what this entails.

Of course, legal action should be a last resort. Your best bet is to maximize the chances that any deal you strike will close smoothly. To help ensure that happens, due diligence is key—and it could help keep you out of a sticky situation.

Recently, we’ve seen scenarios where buyers make firm offers on multiple properties. They’re obligated to drop off their deposit cheques within 24 hours—but only do so for one of the home they’ve bid on. No seller wants to find themselves on the losing end of a situation like this (especially since pursuing legal action isn’t always worthwhile). Fortunately, an experienced listing agent can help you look out for red flags and take the right precautions.

Looking for more resources for sellers? Check out some of these blogs about how to sell your home:

What buyers should know

Needless to say, if you breach your real estate contract, you may not get your deposit back. It can be a hard pill to swallow. For this reason—and because it’s the right thing to do—you should only enter into a real estate contract in good faith.

Know that the home you’re bidding on is the one you want. Carefully select the conditions you want to include (if any). For example, a financing condition will allow you to avoid losing your deposit if your mortgage falls through. Lastly, understand the consequences of defaulting on your purchase—and be sure to ask your agent for clarity when need be.

Of course, while it’s less common, there are also circumstances where sellers breach real estate contracts. If this happens, you’ll very likely be able to get your deposit back. There may be other legal remedies available to help you recoup expenses—and, in some cases, compel the seller to go through with your original agreement.

Ready to buy or sell your next home? We’ll help you tackle every detail—and ensure you know what to expect. Get in touch to get started!

Leave a Reply

Your email address will not be published. Required fields are marked *