Contracts
What is 'liquidated damages' and how does it function in a Nevada purchase agreement?
AA court-ordered cash payment for property damage caused during inspections
BA pre-agreed amount of damages specified in the contract that one party will pay if they breach — in Nevada purchase agreements, the earnest money often serves as liquidated damages for buyer default✓ Correct
CThe penalty charged by a lender for early mortgage payoff
DDamages calculated by a court after a breach has occurred
Explanation
Liquidated damages are damages agreed upon in advance and specified in the contract. In Nevada real estate, the purchase agreement typically designates the earnest money as the seller's liquidated damages if the buyer defaults. This provides the seller with a defined remedy without requiring a lawsuit to prove actual damages. For the clause to be enforceable, the amount must bear a reasonable relationship to anticipated actual damages.
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