Liquidated damages allows the seller to collect the buyer's deposit if the buyer does not complete the transaction due to the buyer's default. Most purchase contracts contain contingencies that allow the return of the earnest money deposit to the buyer. If the buyer releases all contingencies and then does not complete the transaction or decides to cancel, the seller is entitled to the buyer's deposit in an amount up to 3% of the purchase price. If the buyer has deposited funds in excess of 3%, the overage is returned to the buyer.
Release of funds to the seller in the event of a buyer's default is not automatic. It requires mutual consent and a separate signed release. If the deposit is increased, both parties are required to sign a separate liquidated damages form to cover the increased deposit.
For more information, consult a real estate lawyer. States other than California and contracts apart from the C.A.R. RPA may contain different stipulations regarding liquidated damages.
At the time of writing, Elizabeth Weintraub, DRE # 00697006, is a Broker-Associate at Lyon Real Estate in Sacramento, California.
