A Florida buyer defaults on a $400,000 purchase contract with a $20,000 earnest money deposit. The seller resells the property for $375,000 and incurs $8,000 in additional marketing costs. If the contract allows liquidated damages, what is the maximum the seller can retain?
Correct Answer
B) $20,000
With a liquidated damages clause, the seller can retain the entire $20,000 earnest money deposit as specified in the contract, regardless of actual damages. Option A only covers marketing costs but ignores the liquidated damages provision. Option C ($25,000 actual damages) exceeds the deposit amount. Option D incorrectly combines deposit and actual damages, but liquidated damages clauses limit recovery to the predetermined amount.
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Related Topics & Key Terms
Key Terms:
Related Concepts
An inspection contingency gives the buyer the right to have the property professionally inspected within a specified time frame and to negotiate repairs or cancel the contract based on the findings.
Liquidated damages are a predetermined amount of money specified in the contract that the non-breaching party is entitled to receive if the other party breaches. In real estate, the earnest money deposit typically serves as liquidated damages.
Novation is the substitution of a new contract for an existing one, or the replacement of one party with a new party, with the consent of all parties involved. The original party is completely released from all obligations.
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