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Contract for the Purchase or Sale of a Home

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Is a Contract for the Purchase or Sale of a Home Binding?

A contract between two parties for the purchase and sale of a home is binding between the parties subject to certain conditions called contingencies.  Most contracts for the purchase or sale of a home contain contingency clauses that allow each party to back out of the contract without any legal consequences if certain conditions are not met.

What Are Contingency Clauses?

Contingency clauses describe certain conditions that must be met before the parties are legally obligated to go through with the sale of the home.  If certain conditions are not met, the contract is null and void and a party (typically the Buyer) can back out without any legal consequences.  There are many types of contingency clauses, but the most common include: 

  • Subject-to-financing clause: If the Buyer cannot secure the loan, mortgage terms, and maximum interest rates that he seeks (usually defined in the sales contract), Buyer can legally back-out of the sale
  • Subject-to-inspection clause: If the Buyer is not satisfied with the outcome of a professional inspection of the home, he can change his offering price without any legal consequences
  • Sale-of-home clause: If the Buyer cannot sell his present home for at least his asking price, the Buyer can back-out of buying the new home without any legal consequences

What if the Contingencies Are Satisfied, But the Buyer Still Backs Out of the Sale?

If all the contingencies are satisfied and a Buyer tries to back out of the purchase of the home, the consequences can be serious.  At a minimum, the Buyer will lose his deposit money.  If the Seller is forced to sell the house to another buyer at a lower price, the breaching Buyer may be liable to the Seller for the difference in price and other monetary damages, including attorneys' fees.  If the Seller cannot find another buyer, the Seller can sue the Buyer for specific performance and force the Buyer to purchase the home.

Additionally, the sales contract may contain a "liquidated damages clause" and the Buyer will have to pay additional monetary damages for breaching the contract.

What if the Contingencies Are Satisfied, But The Seller Still Backs Out of the Sale?

If all the contingencies are satisfied and a Seller backs out of the sale or demands more money from the Buyer, the Buyer can sue the Seller for specific performance and force the Seller to hand over the deed to the home.  While the lawsuit is pending, a "lis pendens" is usually recorded against the home's title to prevent the Seller from selling the home to another buyer.

If the Buyer can prove intentional fraud by the Seller, the Buyer may be able to sue for additional punitive damages against the breaching Seller.

Do You Need a Real Estate Lawyer?

There are many steps and a lot of information involved if you wish to purchase or sell a residence. An experienced real estate attorney will review listing agreements with brokers, offers, and purchase contracts before you sign them to make certain that your requests are met.  An attorney will ensure that your legal rights are protected in the event the other party breaches the contract.

Photo of page author Ken LaMance

, LegalMatch Law Library Managing Editor and Attorney at Law

Last Modified: 04-16-2018 07:23 PM PDT

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