One of the most common questions for real estate lawyers from clients involves the following scenario: either “I want to sell my house” or “I want to buy a house,” but “how does it work?” Buying or selling a home can be one of the most stressful times in our lives, but also one of the most rewarding once the deal is completed. Having a signed contract for a brand new home can be one of the most uplifting experiences our clients have, especially if they are first time homebuyers.
However, before you sign a contract for the sale or purchase of a home, there are a few housekeeping legal matters that you should be aware of. In this article, our focus is not on one particular legal topic, but on a specific point in time: the signing of the contract. Once the contract is signed, certain legal obligations and connections begin to activate, which could affect your rights. While any good real estate attorney will already be on the lookout for these issues, you should also know what signing a real estate purchase contract entails.
A contract is a legal instrument that creates a binding obligation. Once two parties enter into a contract for the sale of real estate, it is not easily broken. When it is broken, consequences often ensue. When a party breaches a contract, the non-breaching party is allowed to sue the breaching party for specific performance or retain the down payment as liquidated damages.
When real estate is involved, either the buyer or the seller may also sue for “specific performance,” which is essentially a request to the court forcing one party to the contract to follow through with his or her contractual obligations of the contract. Also, as mentioned above some real estate contracts also contain consequences for breaching the contract such as forfeited deposits or money damages.
Because of the serious consequences of creating a contract, you should make sure that the proverbial price is right before signing on the dotted line. Do not make the mistake of considering the home in a vacuum. Think about the home’s surroundings. Are grocery stores reasonably accessible and are the schools in the area good quality? Also make sure that the home you want is your dream home, that it is a fair deal, and that you have considered all other options. Nothing stings more than signing a contract for expensive real estate only to find a better home for less money on the market at a later time.
If you have signed a contract either to sell your home or to buy a new home, there may be ways to rescind the contract. First, most real estate contracts contain what are known as contingencies. Under real estate contract contingencies, certain requirements must be met before the closing for the sale to be final. For example, a contract might be contingent on the buyer acquiring financing for the home. If the buyer has not acquired financing, the buyer can generally receive the down payment back and nullify the contract.
Not many people have any reason to consider the period between signing a real estate contract to buy a home and the closing of the sale. Unfortunately, this period is legally significant as it relates to the risk of loss. To explain this concept in layman’s terms, take this hypothetical scenario. Let’s say that Bob wants to buy a home from Sam, and they sign a contract agreeing to the sale on Monday, and Bob and Sam have agreed to close the sale on Friday. What happens if the home is struck by lightning on Wednesday and burns to the ground? Is Bob still forced to buy the smoldering ruins of his dream home, or can he back out of the contract?
Under the doctrine of equitable conversion, the “risk of loss” would shift to the buyer immediately after the contract is signed. However, in New York, Bob could back out of the home-purchase contract with Sam as long as Bob was not at fault for the loss of the home.
In any real estate negotiation, you should have an experienced real estate attorney review the real estate contract. While it is true that real estate brokers and real estate agents are pseudo-legal professionals, they are not attorneys and are technically not allowed to give legal advice.
Additionally, if you are buying or selling a home using a broker hired by the other party, that broker is under no legal obligation to act in your best interest. While a broker that you hire has a fiduciary duty to act in your interests (just like a bank has a legal fiduciary duty to keep your money), a broker hired by someone else is not so bound.
If you are considering signing a contract to buy or sell a home, you should contact the Law Office of Yuriy Moshes. We work with clients on real estate matters in both New York and New Jersey. We help clients negotiate and draft home sale contracts on a daily basis and can assist you with your real estate needs.