A Missouri purchase agreement for a $320,000 home specifies that the buyer's earnest money of $6,400 shall serve as liquidated damages if the buyer defaults. The buyer defaults without legal justification. The seller has also incurred $4,200 in actual damages (carrying costs, relisting fees, etc.). Under Missouri law, what is the seller most likely entitled to collect?
Correct Answer
A) The full $6,400 earnest money as liquidated damages, as specified in the contract
Missouri courts generally enforce liquidated damages clauses in real estate purchase agreements when the amount is a reasonable pre-estimate of damages and actual damages would be difficult to calculate precisely. When the contract specifies that earnest money serves as liquidated damages upon buyer default, the seller is entitled to retain the earnest money as specified — in this case $6,400. The liquidated damages clause serves as the agreed remedy and typically precludes seeking additional actual damages.
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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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