Can a Buyer on a Real Estate Contract Be Held Liable Beyond His Earnest Money Deposit?
by William Bronchick, Esq. The “standard” real estate contract usually has a provision spelling out the legal remedy of the buyer or seller upon default of the agreement. In most cases, the buyer wants to limit his risk of loss by offering a small earnest money deposit and inserting a “liquidated damages” provision. A liquidated damages provision states that if the buyer breaches the agreement by failing to close title, the seller’s sole legal remedy is to keep the buyer’s earnest money. Without a liquidated damages provision, the seller could sue the buyer for his actual, provable damages or force the buyer to purchase the property (called “specific performance”). The liquidated damages provision is thus an agreed-upon, estimated guess of the actual damages the seller would sustain if the buyer breached the agreement by failing to close. Many court battles have been fought over the validity or enforceability of liquidated damages clauses, since they often result in unfair consequences
Related Questions
- What if the parties to a real estate contract for the conveyance of real estate want someone other than a broker to hold earnest money or other trust funds?
- What if the contract fails and the seller and buyer cannot agree on who is entitled to the earnest money?
- WHAT EARNEST MONEY IS REQUIRED TO GO TO CONTRACT AND HOW ARE THE FUNDS HELD?
