Available Seller Damages WhenBuyer Breaches Real Estate Contract

specific performance real estateWhen a Buyer of real estate breaches a purchase and sale agreement (a Contract), the Seller frequently suffers damages.

Often, those Seller damages may be compensated by the earnest money, or are simply not cost-effective to pursue.  In other cases, the damages can be significant.  Accordingly, the non-breaching Seller is wise to consider the types of damages that may be recovered for the Buyer’s breach of a real estate contract.

DAMAGES DIFFICULT TO CALCULATE

Damages for breach of a contract to buy or sell real estate are “uncertain and not easily estimated with accuracy.” Chan v. Montebello Dev. Co.No. 14-06-00936-CV, 2008 WL 2986379, at *3 (Tex. App.-Houston [14th Dist.] July 31, 2008, pet. denied) (mem. op.) (quoting Thanksgiving Tower Partners v. Anros Thanksgiving Partners, 64 F.3d 227, 232 (5th Cir.1995)). For this reason, when a buyer defaults, the seller may seek specific performance “or usually receives any earnest money and retains the value of the use and ownership of the property.” Barry v. Jackson, 309 S.W.3d 135, 140  n. 8 (Tex.App.-Austin 2010, no pet.). The seller may, however, decline to pursue either of these options and sought to recover damages.

ELECTION

A party suing for breach of a contract involving the sale of real estate must elect to sue either for money damages or specific performance. Davis v. Luby, No. 04-09-00662-CV, 2010 WL 3160000, at *3 (Tex.App.-San Antonio Aug. 11, 2010, no pet.) (mem. op.); Byram v. ScottNo. 03-07-00741-CV, 2009 WL 1896076, at *3 (Tex.App.-Austin July 1, 2009, pet. denied) (mem. op.).

If the party sues for damages, he has elected to treat the contract as terminated by the breach and to seek compensation for that breach. Davis, 2010 WL 3160000, at *3; Byram,2009 WL 1896076, at *3. If the party sues for specific performance, he affirms the contract and requests the trial court to effectuate the agreement. Davis, 2010 WL 3160000, at *3; Byram, 2009 WL 1896076, at *3.

SPECIFIC PERFORMANCE

Specific performance is an equitable remedy that may be awarded for a breach of contract, Stafford v. S. Vanity Magazine, Inc., 231 S.W.3d 530, 535 (Tex. App.-Dallas 2007, pet. denied), and is an alternative remedy to damages. Levetz v. Sutton, 404 S.W.3d 798, 805 (Tex.App.-Dallas 2013, pet. filed) (citing Paciwest, Inc. v. Warner Alan Props., LLC, 266 S.W.3d 559 (Tex.App.-Fort Worth 2008, pet. denied)).  In a past post on this blog, I explained specific performance, and the legal rationale behind this remedy.

Practically speaking, a seller seeking to enforce specific performance against defaulting Buyer involves the filing of a lawsuit seeking to compel the Buyer to close (i.e “perform” under the purchase contract).  This remedy is slow and costly. It also assumes that the Buyer is able to perform, including by paying the balance of the agreed-upon purchase price.  Sometimes this is simply not the case, and my experience is that Buyers often default because they simply lack the funds or financing to close upon a purchase.

MEASURE OF MONETARY DAMAGES AVAILABLE TO SELLER

When a real estate contract is breached by the purchaser, the measure of damages is the difference between the price the seller was to receive (under the contract) and the market value of the property at the date of the breach. Kempner v. Heidenmeier, 65 Tex. 587, 591 (1885); Long v. Brown, 593 S.W.2d 371, 372 (Tex.Civ.App.-Dallas 1979, writ ref’d n.r.e.); Barry, 309 S.W.3d at 140See also Kollmeyer v. Stewart, No. 05-00-01787-CV, 2001 WL 1570322, at *3 (Tex. App.-Dallas Dec. 11, 2001, no pet.) (not designated for publication).

This damage calculation can be expressed as follows:

Purchase Price to be Paid by Buyer Under the Contract

–  (Fair Market Value on Date of Breach)

= Seller’s Damages

Notably, if the price to be paid under the contract is equal to or less than the market price, then the Seller is said to have suffered no damages. See Goldman v. Olmstead, 414 S.W.3d 346 (Tex. App.-Dallas 2013, pet. denied).

In my opinion, this measure of damages is fertile ground for unjust results, including when the Seller loses another potential sale of the property, or when the property is “off-market” for a lengthy period.