Seller Remedies When a Buyer Breaches the Contract
QUESTION: I currently represent a buyer under contract to purchase a home. My buyer is considering terminating the contract after the due diligence period. If my buyer breaches the Offer to Purchase and Contract, what remedies are available to the seller?
ANSWER: When a buyer fails to fulfill their obligations under the Offer to Purchase and Contract (Standard Form 2-T), such as failing to close on the agreed-upon settlement date, the seller may have limited but clearly defined remedies under Paragraph 23(a) of the contract.
Paragraph 23(a) of Form 2-T states that if the buyer materially breaches the contract, the seller may retain both the Earnest Money Deposit and the Due Diligence Fee as liquidated damages. This remedy is the seller’s sole and exclusive remedy for the buyer’s breach.
With a liquidated damages provision, this means:
1. The seller does not have the option to sue the buyer for additional damages (like lost profit or market changes).
2. The parties agree in advance that retaining these amounts fairly compensates the seller for the buyer’s breach.
3. The buyer’s default must be a material breach, meaning a failure to perform a significant obligation under the contract, such as not closing without lawful excuse.
The rationale for this provision is to create predictability and finality for both parties. By agreeing to liquidated damages, sellers avoid the time and uncertainty of proving actual damages in court, and buyers understand their maximum financial risk if they breach.
Importantly, the seller’s right to retain the funds depends on the nature of the breach. If there is a genuine dispute about whether the buyer had the right to terminate, such as when the seller cannot provide clear and marketable title, the question of whether a breach occurred may not be straightforward.
If there is a dispute over which party is entitled to the deposit, agents should advise their client to consult with an attorney. When there is a dispute, the disbursement of an earnest money deposit may require written agreement by both parties or a court order addressing how the money will be disbursed. Only an attorney can help a buyer or seller evaluate the breach and advise on the best path to resolve the dispute.
Release Date: 07/03/2025
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