Contracts
What is 'liquidated damages' in the context of a California residential purchase agreement?
ADamages that are calculated after trial
BA pre-agreed amount (typically the earnest money) that the seller receives if the buyer defaults✓ Correct
CThe cost of repairs after inspection
DThe lender's penalty for early payoff
Explanation
Liquidated damages is a clause where both parties agree in advance that if the buyer defaults, the seller's remedy is limited to keeping the deposit (up to 3% of the purchase price in California residential transactions). Both parties must initial this clause for it to be valid.
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