With the present real estate down-turn and subsequent changing market conditions the once normal "Liquidated Damages Clause" is marking it's way back into both Offers to Purchase and Purchase Sales Agreements when it comes to earnest money" Deposits."
In an up-market or when real estate prices and demand are escalating this clause generally is not required.
However, today many buyers now change their minds, after entering into a contact. The classic legal question then becomes, " who owns the deposit?"
The buyer or the seller? Is it spelled out in the agreement? What happens with the agent-broker who may have spent enormous time putting the deal together?
One old remedy, used for decades in the real estate brokerage community, was to have a Liquid Damage Deposit Clause spelling out that in the event of a buyers default the deposit would be then retained and split equally(50-50) between the seller and the broker.
The seller took the property off the market, paid taxes and insurance and is entitled to some small compensation. The agent-broker also spent time and effort on creating the deal.
No ones gets rich and sometimes such a clause allows the buyer to know that entering a real estate contract is a serious matter.
Before proceeding with this "legal" concept I recommend that you consult with an attorney for the proper wording.
Hope this helps,
Bill McInerney, Realtor
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