Contracts
Liquidated damages in a real estate contract are:
ADamages awarded by a court after a trial
BPre-agreed compensation specified in the contract for breach by one party✓ Correct
CThe amount of commission earned by the broker
DDamages paid by insurance
Explanation
Liquidated damages are a pre-agreed amount specified in the contract to compensate for a breach. In real estate, the seller typically retains the earnest money as liquidated damages if the buyer defaults, provided the contract allows it.
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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.
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.
ContingencyA condition in a purchase contract that must be satisfied before the sale can proceed to closing.
Purchase AgreementA legally binding contract between a buyer and seller that outlines the terms and conditions of a real estate sale.
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