By RVAR Counsel David Bullington

A recent case from Bedford County reported in the Roanoke Times serves as an important reminder that buyers who breach a real estate contract, particularly in an uncertain market, run the risk of incurring significant liability for damages.  In the Bedford County case, the sellers developed and built a large new home with substantial upgrades requested by the buyer, who signed a non-contingent contract to purchase the house for $650,000.00.  After its completion in November 2006, the buyer refused to close on the home.

The sellers put the property back on the market for resale, and after over a year on the market, obtained a subsequent contract to purchase the house for $571,000.00.  The sellers brought suit for the difference between the original and subsequent sales price and other related damages.  Last week, a Bedford County jury awarded the sellers $155,000.00 in damages, consisting of the difference in the sales prices, plus the sellers’ “carrying costs,” including additional interest payments on their loan, utilities, and upkeep, as well as attorneys’ fees under the contract. 

While the price range of the home caused the amount of damages to be high in this case, three important general points are illustrated.  The first is the general rule of damages for a seller in a case involving breach by the buyer of a purchase contract.  This rule is that generally the buyer will be responsible for the difference between the sales price of the contract breached and the subsequent contract for resale, plus carrying costs where appropriate.  There is no certainty that a seller will obtain the same price on the subsequent resale contract, even in a strong housing market.  

The second point is that our standard contract forms provide for award of “reasonable” attorneys’ fees to the prevailing party.  This raises the stakes substantially in a breach of contract situation and should give buyers and sellers pause before taking a position that could put them in breach of contract.  In addition to damages, the losing party will have to pay not only his or her attorney, but often his or her opponent’s attorney as well.  In the Bedford County case, a prominent downtown law firm represented the sellers, and the jury included in its award of damages fees for the law firm.

A third point is that where a seller is faced with a buyer who refuses to close, and the seller wishes to preserve the right to pursue damages, the seller should give the buyer written notice of the breach and establish a “time is of the essence” closing deadline and the consequences for failing to meet it.  The seller not only needs to do this to make certain the buyer will be responsible for damages, but more importantly to ensure the breaching buyer’s equitable rights in the contract have been terminated so the seller can resell the property without concern that that buyer retains enforceable contract rights to buy the property.  A seller wants to avoid the possibility of two binding purchase contracts at all costs, so seek competent advice in this situation to protect your seller.