Liquidated Damages Q & A and more

A few bullets:

·    The liquidated damages paragraph benefits both buyers and sellers.

·    For buyers: It can serve to greatly reduce or limit their financial liability up to the amount of their deposit actually paid (up to 3% for 1-4 unit residential owner occupied purchase) in the event of their breach after removal of their contingencies (typically 17 days after acceptance).

·    For sellers: It provides for an agreed upon amount from the buyers up front in the event of buyer’s breach without the sellers having to prove actual damages.

·    Liquidated damages must be initiated by both buyer and seller to be enforceable.

·    Always remember the importance of an appropriate deposit amount and/or an increased deposit (up to at least 3% total) following the inspection period and removal of buyer’s contingencies.

·    The C.A.R. (Receipt for Increased Deposit) must be signed at time of delivery of the increased deposit (to escrow) in order for the increased deposit amount to be made part of the liquidated damages provision.

·    In California any agreement for a non-refundable deposit is unenforceable. Just remember, there’s no such thing as a non-refundable deposit.

·    Best practice is to get a large deposit (with an increased deposit if necessary), and have buyer remove their contingencies after their inspection period. The seller may wish to negotiate a release of deposit after such removal.

·    As always, see your manager with questions.

Good Luck!