Our Standard Real Estate Contract Isn’t Worth The Paper It’s Written On

This is a pretty outrageous statement, particularly coming from the current Chairman of the Standard Forms Committee.

A few times a year we handle transactions in which one party or the other decides they don’t want to go through with it.  However, sometimes by the time they make this decision, a contract has already been signed and all available avenues to void the contract have expired. 

Recently, a seller contacted their buyers to inform them they had changed their minds and no longer wanted to sell their home.  They told the buyers they were not going to show up at closing.  Situations like this lead to frantic calls from the real estate agents involved wondering what to do or how they should handle it. There is a strong moral sense that the party should show up and close on the deal as promised in the contract.

A contract is a legally enforceable agreement between two or more parties.  The operative words here are “legally enforceable.”  It doesn’t say “self-help” enforceable or “strong man” enforceable.  The power or enforceability of our contract is ultimately only through the judicial system.  We may point fingers at one party or the other claiming a breach of contract, but only one person has the power to decide which party breached and what damages were suffered; a judge!  So, our standard real estate contract, or any contract for that matter, isn’t worth the paper it’s written on unless a party is willing to legally enforce it (i.e., pursue legal action).  Anything short of that isn’t legally enforcing the agreement, but rather, the parties coming to mutually agreeable terms regarding the sale or not of a property, which for most, is more palatable than litigation.

There is no magic bullet solution to one party breaching the contract.  If it can’t be worked out between the parties and their agents, going to court (or some form of alternative dispute resolution) or simply walking away and starting over are the only available options.