Liquidated Damages Clause: Defined & Explained

By Home Bay

Posted on November 6th, 2014

The Liquidated Damages clause in a real estate contract is a reasonable and agreed upon amount that would be awarded to the seller, should the buyer breach the contract. Liquidated damages typically do not exceed 3% of the purchase price. Read on to learn how this clause protects both the buyer and the seller.

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Once contingencies are released, many sellers begin to pack their home, schedule the movers, put a deposit down on a new home and maybe even leave their job. There could be real financial and emotional strain for the seller if the buyer decides they don’t want the house and backs out of the deal.

The Liquidated Damages clause protects the seller by awarding this agreed upon amount to cover his losses. It also protects the buyer by limiting the damages to a ‘reasonable’ amount.

What if there is no clause?

In the absence of the Liquidated Damages clause, the seller would have to prove the amount of costs incurred when the buyer breached. This legal dispute would be costly for both buyer and seller. A liquidated damages clause saves both sides the legal burden.

This clause is standard in most real estate offers. It is typically in the best interest of both the buyer and seller to have one.

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Posted in Real Estate Negotiations