A contract provides that if the buyer defaults, the seller may retain the $10,000 earnest money as the agreed-upon damages. The buyer defaults. What happens to the earnest money?
Correct Answer
A) It is retained by the seller as liquidated damages
When a contract contains a liquidated damages provision, the earnest money may be retained by the seller as the agreed remedy if the buyer defaults.
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Related Topics & Key Terms
Key Terms:
Related Concepts
Contract termination occurs when a contract is ended or discharged, releasing both parties from their obligations. A contract can be terminated through performance, mutual agreement, operation of law, or breach.
A counteroffer is a response to an original offer that changes one or more terms of the offer, effectively rejecting the original offer and creating a new offer. The party who makes the counteroffer becomes the new offeror.
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.
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