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What to Do When a Seller Breaches a Real Estate Contract

When a seller breaches a real estate contract, buyers may need to contact a real estate attorney to sue for damages. In most cases, sellers are eager to close on real estate transactions. In cases where a seller tries to back out of the deal and cancel the real estate contract, the buyer may be entitled to sue the seller for damages related to a breach of contract.

For home buyers and sellers, purchasing a new home and selling an existing home are usually exciting ventures that lead to anticipated lifestyle changes. Buyers are anxious to move into their new homes, and sellers are eager to move on. Although the real estate process can involve complex paperwork and lengthy time frames, once the loan is approved most transactions go smoothly for buyers and sellers, closing within 60 to 90 days.

Most real estate transactions between home buyers and sellers are completed without too many complications, but what happens when a seller tries to back out of a seller’s contract? In some cases, sellers actually breach the real estate contract because they get cold feet, receive higher offers, or experience life-changing circumstances. When this occurs, suing the seller for breach of contract real estate may be an option for the buyer.

What Constitutes a Breach of Contract by Seller?

A real estate breach of contract occurs when the buyer or the seller backs out of the deal. In real estate transactions, when sellers back out of contracts or fail or refuse to perform their legal obligations under a contract, buyers may be entitled to receive the following:

  • Monetary Damages – If the seller acted in good faith, they may only be liable for the return of the deposit, title examinations costs, property survey costs, attorney’s fees, and other reasonable expenses. If the breach of contract caused the buyer significant harm, the court may grant additional financial compensation.
  • Liquidated Damages – If there is a liquidated damages clause in the sales contract, the buyer may be entitled to a predetermined amount of money due to a breach of contract. Liquidated damages are estimated at the time of signing, but are only enforceable if calculating actual damages is difficult and the estimate is reasonable.
  • Contract Termination – If a breach of contract occurs, a home buyer is entitled to recover any payments made to the seller, including the deposit or down payment on the loan. Such payments are usually outlined in the Closing Disclosure, a statement of final loan terms and closing costs given to and signed by the buyer prior to the closing date.
  • Specific Performance – Specific performance requires an Illinois real estate lawyer to send a court order to the breaching party before legal actions can be taken. The judge typically chooses this option when monetary damages are not an adequate remedy.

Under “Specific Performance” demands, legal action is required. If a seller is able to perform but refuses to do so, a court order can force the seller to sell the property to the buyer as originally planned. The court order can force the seller to sell the home according to the terms of the contract, instead of merely compensating the buyer for breach of contract.

In most cases, courts are hesitant to enforce specific performance if the seller plans to continue living in the home. However, if the seller breached the contract because he or she received a better offer, the court is more likely to force the sale. If the contract allows the seller unconditional rights to cancel the sale, specific performance is likely completely off the table.

Did the Seller Really Default on the Contract?

Real estate transactions and contracts can create property investing nightmares, so it’s important to understand all paperwork and documents before signing on the dotted line. To protect both buyers and sellers, most real estate contracts include “contingencies” that provide legal ways out of an agreement without consequences.

For instance, if the buyer and the seller agree that the sale is contingent on the seller finding a new home, the seller is within their rights to cancel the contract, if he/she has made a good-faith effort and has not been able to find a home. In this case, there is no legal basis for a breach of contract claim.

Suing the Seller for Breach of Real Estate Contract

When a seller breaches a real estate contract and that action results in damages to the buyer, suing the seller for breach of contract is a viable option. However, the amount that a buyer can sue for depends on individual state laws. Under Illinois laws, a contract is assumed to have been formed when three conditions are met: 1) One party makes an offer to a second party, 2) the second party accepts the offer, and 3) a consideration is exchanged between the two parties (money for goods or services, etc.)

When these three conditions are met, it is assumed that a legal contract has been formed. To prove that a contract has been breached, the party suing the seller for breach of contract must prove that all three factors exist in order to have a valid legal claim.

Lawyer hand showing paperwork for signing, agreement contract and settlement offer in law firm office

He helps clients resolve issues relating to family law, including divorce, parenting time and parental responsibilities, paternity, and child support. As a skilled real estate attorney as well, Scott also provides advice and legal representation to clients who are purchasing or selling residential or commercial property in Illinois.

Years of Experience: Approx. 30 years
Illinois Registration Status: Active
Bar & Court Admissions: Illiois Courts Northern District of Illinois Federal Courts Illinois State Bar Association Chicago Bar Association

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