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Buyer contracts to buy an item, such as a house, subject to the condition that feature X (perhaps the swimming pool), is in working order (it's clear in the contract that this is an essential condition). After the signing, but before the transfer of funds, it is found that X is not in working condition, thereby violating this essential condition.

It costs $10,000 to bring X into working condition. The seller doesn't have the $10,000. The buyer wants out, and says "no repairs, no deal." The seller counters by saying, "Please give me $10,000 so that I can make the repairs, and deliver the house, in promised condition," or even "I will lower the net purchase price by the cost of the repairs so that the gross purchase price to you is the same." In essence, the seller is asking the buyer to "front" the repair cost.

Can the seller's counteroffer bring about the operation of the original contract? Or was the original contract's intent violated so that a new contract needs to be negotiated and signed?

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The contract probably allows you to walk away from the deal without putting your earnest money at risk: you cannot force a specific outcome. The seller can make an offer, and the deal dies if it isn't accepted or counteroffered by the deadline. The counteroffer by buyer could be "No, fix the pool", and the seller can reject that counteroffer (or, the buyer could propose a price reduction, which, again, the seller could reject). If the deal dies, the earnest money is returned to the buyer.

Look for a clause regarding property condition after mutual acceptance. After the contract negotiations are complete, there is almost certainly a clause where you get your earnest money back when you discover that the property is not in "working order" in the way you describe.

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Yes

Condition precedent to the contract

If a working pool is a condition precedent then there is no contract. Both parties are free to walk away.

Condition of the contract

If a working pool is a condition of the contract then the vendor is in breach of the contract and is liable to the buyer for damages i.e. the cost of making the pool work. A court will only order specific performance when damages are an inadequate remedy; which is clearly not the case here - the buyer doesn’t care how or by whom the pool is fixed,only that they are not paying for it. Indeed, they can take the money and not get the pool fixed and blow it all on party hats if they like.

It is unlikely that a court would consider the breach so egregious that the buyer could terminate the contract.

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