Final answer:
When a seller fails to complete a real estate transaction as stipulated in the contract, causing issues with possession of the property, the contract generally allows either party to terminate the agreement without liability and ensures a refund of any payments made. This scenario is compounded by imperfect or asymmetric information, which can impact markets and necessitate mechanisms to secure fair transactions.
Step-by-step explanation:
When a seller fails to fulfill their obligations as outlined in a contract, the real estate transaction can be deemed unsuccessful due to non-performance. In such cases, possession of the property cannot be transferred as initially agreed. According to standard contract terms, if an owner is unable to deliver possession of the residence on the agreed date for any reason, such as loss, destruction, or the failure of prior residents to vacate, either party can terminate the agreement. Upon termination, the agreement specifies that neither party shall have liability to the other, and any payments made under the agreement will be fully refunded.
However, when dealing with economic transactions in general, especially in real estate, one often encounters imperfections with regards to information transparency. This imperfect information or asymmetric information scenario involves situations where either or both parties do not have full certainty about the product's qualities. These informational issues can lead to mispricing, decreased volumes of transactions, and reluctance in market participation.
In efforts to overcome these issues, buyers and sellers have an incentive to establish mechanisms that facilitate mutually beneficial transactions, even amid imperfect information. Such mechanisms can include property inspections, warranties, and clear contractual terms to protect the involved parties.