What are liquidated damages typically represented by in a real estate contract?

Liquidated damages in a real estate contract typically refer to a pre-determined amount that parties agree upon in the event of a contract breach. In most cases, the earnest money deposit is the amount specified as liquidated damages. This deposit is made by the buyer to demonstrate seriousness in the transaction and is often at risk if the buyer fails to fulfill the contractual obligations.

By agreeing that the earnest money will serve as liquidated damages, both parties have clarity on what the financial consequences will be should one party default. This arrangement helps avoid potential disputes in the event of a breach, as it clearly sets the expectation for compensation.

Although other amounts such as a percentage of the sale price or future commission rates could play roles in financial discussions concerning a property sale, they do not typically serve as liquidated damages within the context of standard real estate contracts.