What is Specific Performance in Real Estate: An Easy Guide

Gavel and the scales of justice

It happens everyday. Two parties sign a real estate contract, and then one of them gets cold feet and wants to back out of the deal.

If you’ve been involved in enough real estate transactions, chances are you’ve come across the term “specific performance.” This legal concept becomes important when a party fails to abide by the terms of a residential real estate contract.

Specific performance refers to a court-ordered remedy that requires a party to fulfill their obligations under a contract instead of paying money damages. In the context of real estate, this typically arises when a seller fails or refuses to transfer the property title to the buyer as agreed upon in the purchase agreement. When you pursue specific performance, you are essentially asking the court to enforce the agreed-upon terms of the sales contract.

Most commonly, specific performance is pursued when a seller tries to back out of a real estate deal. In this scenario, it’s the buyer who is attempting to make the seller perform, aka follow through with the contract everyone signed.

It’s less common for a seller to pursue specific performance and force the buyer to follow through with a contract, especially in a hot real estate market. More often than not, the seller can achieve the same result (selling their home) faster and with less headache by putting their home back on the market and finding a new buyer VS hiring an experienced attorney and getting a court order.

Understanding Specific Performance

Imagine you’re a buyer who has signed a contract to purchase a house. Your earnest money is in escrow. You’ve scheduled movers. The whole nine yards.

Then you get a phone call from your real estate agent saying the seller is planning to breach contract, and is refusing to close on the sale.

You calmly (or not so calmly) ask your real estate agent what your options are. They tell you that you have the right to pursue specific performance, and immediately reach out to your real estate attorney for counsel.

In this case, the court can order the seller to complete the sale as per the original agreement.

Valid Contracts and Specific Performance

Conditions for a Valid Contract

This is why it’s soooo important to hire a good real estate agent. Nothing against your cousin’s neighbor who just got licensed — but this is where the rubber meets the road. If an inexperienced agent goofed your contract, you might be up a creek without a paddle. Though I’m not an attorney, and this isn’t legal advice, in most situations you must have a valid contract in order to successfully pursue specific performance.

In the context of residential real estate, a valid contract must have clear contract terms.

First, the conditions of the contract, such as the purchase price, property description, and closing date, must be clearly defined. It’s essential for the involved parties, including the buyer, seller, and any real estate attorneys, to agree on these terms. A valid signed contract should also include signatures from all necessary parties.

Second, there must be consideration involved, which means that something of value is being exchanged between parties, such as money for property. Lastly, both parties should have the legal capacity to enter into the contract, so they must be of age and sound mind to make decisions.

When to Seek Specific Performance

If you feel the urge to yell “NO BACKSIES” that’s a dead giveaway you’re the aggrieved party. It’s time to call your real estate attorney and tell them the whole sad story from beginning to end.

Like I mentioned earlier, in most cases, specific performance is pursued by a buyer that seeks to force a seller to follow through with a valid purchase agreement.

Instances for Specific Performance

Non-Breaching Party

In specific performance situations, the non-breaching party, is just that. The party that is not breaching the contract and wants the breaching party to fulfill their contractual obligations.

Breach of Contract

The term “breach of contract” is a fancy phrase that means someone didn’t do the thing they said they would do. And the thing they’re refusing to do is clearly spelled out in a valid contract.

Seller’s Cold Feet

home seller with cold feet running for the hills

Sellers can get cold feet and try to back out of the deal due to personal reasons, but most often it’s because they received a better offer. In such cases, if you have satisfied your obligations under the contract but the seller refuses to complete the transaction, you and your real estate attorney have a clear path to pursuing specific performance.

Keep in mind, specific performance is not always granted by the courts. It is typically awarded in cases where financial compensation is not an adequate remedy, and the property in question is unique (which describes more real estate). The final decision rests with the court, considering the circumstances and whether specific performance is the most appropriate remedy for the breach.

Specific Performance of the Contract

Court Order

When seeking specific performance as a remedy, a court order is issued, compelling the seller to complete the sale as stipulated in the contract. Courts will only grant it when financial compensation or other remedies are insufficient or inadequate to address the breach.

Sale of Real Estate

Specific performance is particularly applicable in the sale of real estate because each property is unique, and standard financial compensation may not always be sufficient to resolve disputes. When a seller refuses to complete the sale, you, as the buyer, have the right to request the court to intervene and order specific performance of the contract. However, keep in mind that the judge will carefully analyze the circumstances of the case before granting such an order, as it is a powerful and potentially intrusive legal remedy.

Purchase and Sale Agreements

When dealing with specific performance in residential real estate, it’s essential to understand the two key agreements: Sale Contract and Purchase Agreement.

Sale Contract

A sale contract outlines the terms and conditions of the sale of a property between the buyer and the seller. In your sale contract, you’ll find basic information like property address, purchase price, and closing date, as well as more specific clauses related to contingencies, warranties, and financing.

As a buyer, you should pay close attention to the specific performance clause in the sale contract. This clause ensures that both parties fulfill their obligations as agreed, and can be enforced in court if either party fails to comply. Don’t forget to review other relevant clauses like inspection and financing contingencies, as they also play a role in specific performance disputes.

Purchase Agreement

The purchase agreement is another crucial element of specific performance in residential real estate. This document establishes the rights and obligations of both parties and is legally binding once signed by the buyer and the seller.

In your purchase agreement, you should look for important components such as earnest money deposits, seller disclosure requirements, and remedies for breach of contract. These elements can directly impact your ability to seek specific performance in case of any disputes or issues.

Remember that specific performance is a powerful remedy, but it is not always automatically granted by the courts. To improve your chances of successfully obtaining specific performance in a residential real estate contract, ensure that your sale contract and purchase agreement are comprehensive and clear on the duties of both parties. Being familiar with the details and requirements of these agreements will help you navigate any challenges or disputes with confidence and ease.

Real Estate Litigation and Disputes

When it comes to real estate litigation, contract disputes are a common occurrence. You might find yourself in a situation where the seller refuses to close the deal or the buyer fails to obtain financing on time.

In a contract dispute, both parties typically argue over the interpretation of the terms or the occurrence of a breach. You, as the party seeking specific performance, will need to prove that the other party has breached the contract and that there is no adequate remedy at law (such as monetary damages) that can fully compensate you for your loss.

To help your case and keep the situation amicable, maintain a friendly tone with the other party during negotiations or while discussing disputes. Showing empathy and understanding can go a long way in resolving issues and avoiding unnecessary escalation.

Remember that in real estate litigation related to specific performance, the courts will examine the terms of the contract and the actions of the parties involved. It is essential to conduct yourself professionally and be forthright with your intentions. Sometimes, misunderstandings can lead to contract disputes and a breakdown in communication. Taking the time to clarify and understand the situation can help avoid litigation altogether.

Frequently Asked Questions

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