Contracts
An Alaska purchase agreement includes an 'earnest money forfeiture' clause. This means that if the buyer defaults:
AThe buyer owes the seller the full purchase price
BThe seller may keep the earnest money as compensation for the buyer's breach✓ Correct
CThe seller must return the earnest money
DThe earnest money is split equally between the seller and the brokers
Explanation
An earnest money forfeiture clause is a form of liquidated damages provision. If the buyer defaults without legal justification, the seller may retain the earnest money as pre-agreed compensation for the buyer's breach, provided this amount represents a reasonable estimate of the seller's damages.
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Key Terms to Know
Earnest Money
A deposit made by the buyer when submitting a purchase offer, demonstrating serious intent and serving as consideration for the contract.
Purchase AgreementA legally binding contract between a buyer and seller that outlines the terms and conditions of a real estate sale.
Option ContractA contract giving the buyer the right, but not the obligation, to purchase a property at a specified price within a specified time period.
Fiduciary DutyThe highest legal duty an agent owes to a principal — requiring the agent to act in the principal's best interest above all others.
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