October 3, 2016

Guard Against a Claim of Specific Performance When Selling Your Home



This article originally appeared in the September 23, 2016, edition of the Vancouver Business Journal

Have you recently had thoughts of putting your house on the market to see what you can get for it?  During the recent, hot real estate market, that sentiment has been expressed and acted on with increasing frequency.  But what do you do if you actually find a good buyer, sign a purchase and sale agreement, but cannot find someplace else to move to right away?  As a seller, you could be in hot water.  With many people eager to get a property sooner rather than later, some buyers have hit sellers with legal claims for specific performance to speed things along.

What is Specific Performance?

Specific performance is an order of the court that requires a party to perform a specific act.  Though specific performance can take a variety of forms, it is usually an action required to complete a previously established transaction.  Specific performance is a remedy allowed by law as an alternative to a cash award for damages.  Courts in Washington are supposed to use the remedy of specific performance only when damages in the form of money are not an adequate remedy for the buyer, when the buyer has not defaulted on its obligations under the contract, and when the contract does not expressly bar specific performance. 

In real estate transactions, the particular parcel of real estate listed for sale is considered unique–there is no other parcel of land exactly like it.  It is because of the unique characteristic of the parcel that makes remedies by specific performance more common in real estate transactions.  A cash award for damages is an inadequate form of compensation when someone is denied something of which there is only one of.

Why Sellers Should Be Wary of Specific Performance

Once a purchase and sale agreement is signed and the reality of having to move sets in is usually when the second thoughts start to creep into the minds of the sellers.  When a court can require your specific performance to execute upon the agreement, you have few outs.  You will most likely be required to sell your home to the buyer and find someplace else to live.

A common way out of a purchase and sale agreement is when the price of the property needs to be renegotiated due to a flaw in the condition of the property, such as the foundation or roof.  The problem with relying on this as a way out is that the buyer may not want to renegotiate.  The buyer can agree to take the property with the title flaw for the same price.  If that is the case, then the seller needs to speed the search for finding a quick rental.   

How Sellers Can Protect Themselves

The seller should talk to their agent about including language in the purchase and sale agreement to avoid the claim of specific performance.  Waivers of claims of specific performance in the purchase and sale agreement will stand in court and save the seller substantial heartache.

Perhaps testing the market to find the value of your real property may be worthwhile.  But if you choose to do so make sure to put the safeguards in the purchase and sale agreement so that second thoughts or title errors do not lead to a sale that the seller no longer wants to make.

Be Careful of the Listing Agreement

Sellers should also beware when signing a listing agreement before they are determined to sell (or sell at that price) with a broker.  Most broker agreements provide that if the agent brings a full price offer that the seller unreasonably rejects, a full commission is due to the listing agent even if no sale occurs.

So, when you want to “see what you can get” for your property, be aware that you may very well have to move or at a minimum pay the realtor’s commission if you do not take steps to protect yourself.  

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