If a Buyer or Seller Defaults on a Real Estate Contract, Can You Sue?
by Hank Miller
on Monday, February 15th, 2021 at 1:03pm.
If a buyer or seller defaults of a real estate contract, can you sue? The answer is of course, it depends. The typical Georgia purchase and sale agreement has a number of standard contingencies; buyer financing and inspection the more obvious. There are also any number of specific contingencies that might be written into an agreement. But what happens if after everything is completed, the buyer or seller just doesn't want to close? In Georgia options are very limited, other states may be different but here the reflex answer of "we'll sue" doesn't broadly apply.
If a Buyer Defaults on a Real Estate Contract
There are many possible reasons that a buyer might not close, contracts can contain different clauses and stipulations. Properly written contracts have several milestones that need to be met prior to a “clear to close'; completion of due diligence, loan qualification, appraisal, repairs, survey and others depending on the complexity of the contract. The GA Association of Realtors contract addresses seller recourse if a buyer simply “refuses to close” after all contingencies are satisfied,
Remedies of Seller:In the event this Agreement fails to close due to the default of Buyer, Seller’s sole remedy shall be to retain the earnest money as full liquidated damages. Seller expressly waives any right to assert a claim for specific performance. The parties expressly agree that the earnest money is a reasonable pre-estimate of Seller’s actual damages, which damages the parties agree are difficult to ascertain. The parties expressly intend for the earnest money to serve as liquidated damages and not as a penalty.
In layman’s terms, the Seller’s sole remedy for a Buyer’s breach is to accept the earnest money as full liquidated damages. This has been the case since 2018 so the idea of a Seller suing the Buyer for any assortment of “damage” is largely removed by the contract. That doesn’t preclude a Seller from consulting legal counsel and look for options, however the contract is clear that the Seller’s sole remedy is to retain the earnest money as full liquidated damages.
If a Seller Defaults on a Real Estate Contract
In GA, sellers have a smaller active role than buyers and their requirements tend to be originated by buyers. Assuming that a seller “refuses to close” after all their requirements are met, the GA Association of Realtors contract offers this guidance:
Remedies of Buyer:In the event this Agreement fails to close due to the default of Seller, Buyer may either seek the specific performance of this Agreement or terminate this Agreement upon notice to Seller and Holder, in which case all earnest money deposits and other payments Buyer has paid towards the purchase of the Property shall be returned to Buyer following the procedures set forth elsewhere herein.
Here, the buyer has two options; take back the earnest money and move on or sue the Seller and make them perform as outlined in the contract. If the Buyer decides to sue, the contract provides guidance as well:
Attorney’s Fees:In any litigation or arbitration arising out of this Agreement, including but not limited to breach of contract claims between Buyer and Seller and commission claims brought by a broker, the non-prevailing party shall be liable to the prevailing party for its reasonable attorney’s fees and expenses.
Key here is that a Buyer has the option to sue the Seller and force them to fulfill the contractual obligation. As noted above, the non-prevailing party – the loser – is liable for the legal fees. This is likely intended to ensure that the Buyer thinks things through before bringing this to court as frivolous lawsuits tie things up.
Brokers Can Pursue Commissions
Both the Seller’s broker and Buyer’s broker have options here as well. Assuming that the default isn’t based on a contingency in the contract, the brokers completed their responsibilities and are due remuneration.
Rights of Broker:In the event this Agreement is terminated or fails to close due to the default of a party hereto, the defaulting party shall pay as liquidated damages to every broker involved in this Agreement the commission the broker would have received had the transaction closed. For purposes of determining the amount of liquidated damages to be paid by the defaulting party, all written agreements establishing the amount of commission to be paid to any broker involved in this transaction are incorporated herein by reference. The liquidated damages referenced above are a reasonable pre-estimate of the Broker(s) actual damages and are not a penalty.
Commissions will be spelled out in the listing agreement, the buyer brokerage agreement and on the instructions to closing attorney form. In the event a home is “clear to close” with all contingencies and stipulations met, the brokers have met their obligations and are due commissions. Most brokerages have staff attorneys and legal action to collect commissions is a viable option.
The Value of Experienced Guidance
A real estate contract is a legal, binding document and in Georgia, it’s written and managed by agents. When things go wrong, and they do fairly often, the situation can quickly get out of hand and become very costly and very stressful. Every contract is unique; contingencies, stipulations, terms and the participants impact how it plays out. Agents must understand this, think through challenges, manage the process and bring the transaction to close. The buyer and seller are expected to act in good faith according to the terms they agreed to
Experienced agents working for established firms are always the best option to avoid trouble. Discounters, hobby agents and dual agency are the breeding ground for disaster. Agents have a fiduciary responsibility to their clients; they are expected to champion their best interests at all times; don’t work with one that doesn’t understand this or care to as the results are not likely to be pleasant.
NOTE - No one with The Hank Miller Team is a lawyer, this is not to be considered legal advice. This is a measured interpretation of the current GAR real estate sales contract, that contract may change over time. Anyone with questions pertaining to subject's like this should always contact their agent first and seek their advice.
The Hank Miller Team puts 30+ years of full time sales & appraisal experience to work for you. Act with complete confidence & make sound, decisive real estate decisions.
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