ContractsIntermediateDelaware Exam

In Delaware, what is an 'earnest money deposit' (EMD) and what happens to it if the buyer defaults?

AA deposit to reserve a property for showing; it is always returned upon buyer cancellation
BA good-faith deposit demonstrating the buyer's intent to purchaseCorrect
CA deposit held by the Delaware Real Estate Commission
DA deposit required only for new construction purchases in Delaware

Why A good-faith deposit demonstrating the buyer's intent to purchase Is Correct

Answer B: A good-faith deposit demonstrating the buyer's intent to purchase

Earnest money is a good-faith deposit showing the buyer's serious intent to purchase. If the buyer defaults without a valid contractual excuse, the seller may be entitled to retain the earnest money as liquidated damages (pre-agreed compensation for breach), as specified in the purchase agreement.

Exam Tip: Contracts

Contract questions frequently test the essential elements required for a valid contract. Remember: competent parties, mutual consent, lawful object, and sufficient consideration. Watch for void vs. voidable distinctions.

Key Contracts Terms in This Question

Earnest Money

A deposit made by the buyer when submitting a purchase offer, demonstrating serious intent and serving as consideration for the contract.

Purchase Agreement

A legally binding contract between a buyer and seller that outlines the terms and conditions of a real estate sale.

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