San Diego Real Estate Blog

Understanding Liquidated Damages

The liquidated damages clause is a key home buyer protection.  The funny things about it is that sometimes buyers are hesitant to initial the liquidated damages clause, which is optional.  It is paragraph 25 of the California Residential Purchase Agreement.

As a buyer, at first glance the liquidated damages clause may seem like you are agreeing to lose your deposit in the case that you should default.  However, that is not the case, nor the focus of this clause.  The buyer has actually already agreed to lose their deposit if the buyer does not complete the transaction once contingencies are removed because of fault of buyer.  This is agreed to in clause 14F regarding the effect of cancellation of escrow on the buyer's deposit.

What the liquidated damages clause does is limit the buyer's liability at not more than 3% of the purchase price.  For this reason, the initial deposit is normally...

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