3 Reasons Smart Sellers Have a Liquidated Damages Clause

By Home Bay

Posted on October 7th, 2016

When you go to sell, you should always request that a Liquidated Damages clause be included in your purchase agreement. But why? How does it help protect your sale? Read on for three really good reasons.


A liquidated damages clause represents a reasonable, agreed upon amount of money that you will receive from the buyer in the event that he or she breaches your purchase agreement. In general, the amount of compensation included in the clause cannot exceed 3% of your home’s purchase price. But that’s not the only benefit of including this clause. Here are three other circumstances where a liquidated damage clause could save your bacon.

  1. It simplifies resolving a contract breach:
    If you and your buyer agree on a liquidated damages clause that defines reasonable damage amounts, should there be a breach, resolving the dispute will be less taxing. If you neglect to put this clause in your purchase agreement, you will have to prove the amount of your financial loss in order to collect monetary damages for your buyer’s breach.

  2. It saves you from needing to seek legal counsel if there’s a breach:
    Without a this clause in your purchase agreement, if the buyer chooses to rescind his or her offer, you will need to seek legal assistance to reconcile the matter. A legal dispute involving attorneys can be costly to you (and to the buyer); however, with a liquidated damages clause, seeking legal representation is not necessary since the terms of the breach are already outlined and have been agreed to by both parties.

  3. It can help you recover deposit money if there’s a contract breach:
    The buyer’s deposit is usually held in escrow until the sale is complete. If the buyer decides to breach your purchase agreement, your damages clause will make you eligible to recover their deposit money. However, to do so, escrow companies usually require both parties sign an agreement prior to the release of any funds. In the event that the buyer is being uncooperative, this clause will help you collect.

When you include a liquidated damages clause in your purchase agreement, you let the buyer know that breaching the purchase agreement will negatively impact them; discouraging not-so-serious buyers and improving the likelihood that your sale will move forward without a hitch.

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