Contracts
In Pennsylvania, 'liquidated damages' in a real estate contract typically refers to:
AThe attorney fees awarded to the prevailing party following breach of contract litigation
BA pre-agreed sum (usually the earnest money deposit) retained by the non-breaching party as full compensation for the other party's default✓ Correct
CCourt-awarded punitive damages for fraudulent misrepresentation in a real estate transaction
DThe costs of re-listing and re-marketing the property after a buyer's default
Explanation
A liquidated damages clause provides that if the buyer defaults, the seller's sole remedy is to retain the earnest money deposit as pre-agreed, liquidated compensation — forgoing the right to sue for additional actual damages. If the seller defaults, the buyer may seek return of the deposit plus specific performance or actual damages. Pennsylvania courts require that liquidated damages represent a reasonable estimate of actual damages, not a penalty, for the clause to be enforceable.
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