Negotiating Specific Performance in Texas Real Estate Contracts

The Uses of Specific Performance in Texas Real Estate Contracts

Specific performance is a safeguard for buyers and sellers in case one of the parties chooses to back out of a real estate contract. In Texas, specific performance is not a cause of action, but it does provide an equitable remedy when a party breaches a real estate contract. Stafford v. S. Vanity Magazine, Inc., 231 S.W.3d 530.535 (Tex.App.Dallas 2007, pet. denied).

The standard real estate contracts issued by the Texas Associations of Realtors (TAR) and Texas Real Estate Commission (TREC) include clauses which significantly impact specific performance. As currently written, a buyer who fails to close on a contract could be sued by the seller for lost profits, a sum which, unlike the amount of earnest money, is not capped and is based on speculation. It is prudent for a buyer to limit default remedies to a fixed sum such as the amount of earnest money being held by the title company. In response, a seller may request more earnest money for additional protection. Almost all buyers should negotiate to delete the default remedies clause in the standard contracts, thus eliminating the seller’s right to impose specific performance.

While waiving the seller’s rights to specific performance protects the buyer from unreasonable demands, the buyer should not in turn waive rights to specific performance against the seller. Because the buyer has invested time and money in the due diligence of a specific property, imposing specific performance on a seller is equitable and appropriate. Buyers must pay non-refundable commitment fees and professional fees in addition to the earnest money, so a buyer suffers more potential loss when a seller breaches a contract.

The current TAR and TREC contracts include unique disadvantages for buyers which can be remedied by deleting specific performance as option for sellers. Even standard contracts create pitfalls and complications when conveying real estate. Working with a lawyer familiar with real estate litigation is the best option for all those involved.

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