Specific Performance VS. Liq. Damages
Hi,
I recently wrote an offer with a local Realtor that I have been working with. This realtor told me that to make my offer more appealing to the seller, I should make it a specific performance contract rather than a liquidated damages contract. Although I had some doubt about the validity of the argument, I agreed and signed my name to a specific performance contract.
I was wondering if anyone would like to share their thoughts on when and under what circumstances it would be beneficial to do a specific performance contract. As an investor, is it someting I should be willing to do? Who does it actually benefit or protect at the end of the day?
As always, your thoughts and comments are well appreciated.
Thanks,
JS. 
"Specific Perf" is something a court can order a party to do...so is this something you'd be willing to do, under court order?
My advice would, in general, to any client, be NOT to sign any doc you haven't carefully thought through...and do NOT sign anything you're not absolutely willing to do.
Here are my non-lawyer thoughts based on PA experience:
Specific performance is the buyer's remedy where the property owner defaults under the sale contract and the buyer wants to force the seller to do something--sell the property to him.
Liquidated damages is usually referred to in the context of a seller's remedy if the buyer defaults under the contract. However, the concept is also applied against a seller. For instance, if the seller can't convey good, marketable, insurable title to the property, the buyer can provide in the contract that the seller reimburse the buyer for any and all costs, fees, expenses the buyer incurred. Make the buyer "whole" insofar as out of pocket expenses. These could include fees for inspections, title insurance, financing, certifications, etc. Provision for liquidated damages against a seller could apply to other obligations of the seller under a particular contract. So if the seller were required to do something else and didn't do it, then that remedy would apply. Enforcement of both remedies could wind up in court.
The basic difference between specific performance and liquidated damages is what the buyer wants from the seller. If the buyer wants something done and money is no subsitute for the action that the buyer wants taken, then specific performance is the route. On the other hand, if monetary damages would satisfy the buyer, then liquidated damage provisions should be used.
I don't know customs, contracts & laws of CO. However, it would seem to me that if a buyer wants to buy a property and a seller defaults--that is, refuses to sell--then buyer should seek specific performance. Buyer wants the property and not money damages.
As for protection, my question is: is there a likely problem here with getting clear title? If this agent is representing you (as opposed to representing the seller), I would ask why the agents feels a contract with specific performance remedy would be more appealing to the seller.
Thank you NancyChadwick. If I read your post correctly, it would seem that the specific performance contract is mostly of benefit to a buyer who wants to ensure that they get the property from a seller.
On the other hand, as an investor, is it wise to make specific performance contracts when you are not yet sure if all the numbers pan out but you want to "lock" the property just in case? In that kind of situation, I am thinking that the liquidated damages would be more beneficial. That way, if the numbers don't work, you can walk away and the seller is compensated for their time with the earnest deposit.
Just a thought.
JS.
Both specific performance and liquidated damages are remedies for a buyer if the seller defaults. So long as the purchase contract has, for instance, contigencies that would give a buyer the right to terminate and be reimbursed any down money/down payment, a buyer could walk from the deal. So, for instance, if you weren't sure the numbers would work until you had the time to investigate facts A, B and C, your attorney would probably recommend putting in a "feasibility period" contingency or something similar. That enables you to tie up the property while you're doing whatever due diligence.
As I said in my prior post, liquidated damages is also a remedy for a seller if the buyer should default. In that event, buyer forfeits down money typically, and seller doesn't have the right to also sue.
I'll be speaking generally here as I am not familiar with the law of your specific state...
Liquidated damages provisions are commonly found in real estate contracts to avoid having to prove damages in the event of default. With an LD provision, the parties agree to a certain number which will compensate the parties in the event of a breach. In the RE context, this provision can be used by either the buyer or seller. Because it is made part of the contract, a suit to compel payment of a liquidated damages provision would be an action at law and would require no discretion on the part of the trial court to award it. If you can prove the breach you should be entitled to the money, plain and simple.
As already noted, specific performance is used to compel an action - - in the RE context, usually to force the seller to sell. A suit for specific performance is an equitable remedy rather than a legal one. In other words, it exists based on fairness principles. Because of this, however, you will need to PROVE that such a remedy is proper (which would not necessarily be the case with liquidated damages since the parties have already agreed to that remedy so long as you can prove the breach).
Hope this sheds some light on your answer.