A California seller accepts a buyer's offer for a home in Thousand Oaks for $900,000. The RPA includes a properly initialed liquidated damages clause. Before closing, the buyer defaults. The seller's actual damages from relisting, price reduction, and carrying costs total $45,000. Under California Civil Code §1675, which outcome is most likely?
Correct Answer
B) The seller retains $27,000 (3% of the purchase price) as the exclusive remedy and cannot pursue the additional $18,000
Under California Civil Code §1675, when a properly initialed liquidated damages clause exists in a residential transaction, it serves as the exclusive remedy for the seller. The maximum retention is 3% of the purchase price ($900,000 × 0.03 = $27,000). Even though actual damages ($45,000) exceed the liquidated amount, the seller cannot pursue additional damages because the liquidated damages clause is an agreed-upon exclusive remedy.
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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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