A buyer submits a C.A.R. RPA offer on a duplex in San Jose priced at $900,000 with a $20,000 deposit. Both parties initial the liquidated damages clause. The buyer later defaults. The seller discovers that actual damages from the breach total $40,000. Under California Civil Code §1675, what is the maximum amount the seller may retain?
Correct Answer
A) $20,000, because the deposit does not exceed 3% of the purchase price and serves as the liquidated damages
Under California Civil Code §1675, liquidated damages for residential one-to-four unit properties are presumed valid up to 3% of the purchase price. Three percent of $900,000 is $27,000. The buyer's deposit of $20,000 is below the 3% cap, so the seller may retain the full $20,000 deposit as liquidated damages. The liquidated damages clause generally operates as the exclusive remedy, limiting the seller to the deposit amount.
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Related Topics & Key Terms
Key Terms:
Related Concepts
Earnest money is a deposit made by the buyer at the time of the offer or shortly after to demonstrate good faith and serious intent to purchase the property. It is also called a good faith deposit.
Equitable title is the buyer's interest in a property after a purchase contract is signed but before closing, giving the buyer the right to acquire legal title in the future. The seller retains legal title until the deed is delivered at closing.
A financing contingency makes the purchase contract conditional upon the buyer obtaining mortgage approval within a specified time period. If the buyer cannot secure financing, they can cancel the contract and receive their earnest money back.
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