ContractsQuestion 56 of 120
'Liquidated damages' in a purchase contract typically refers to:
a.A penalty imposed by the state on the seller
b.The broker's guaranteed commission
c.The buyer's mortgage interest for the year
d.An amount, often the earnest money, agreed in advance as compensation if the buyer defaults
Explanation
Liquidated damages are a predetermined amount the parties agree the seller may keep if the buyer defaults, commonly the earnest money deposit. This provides certainty and avoids litigation over actual damages. The amount must be a reasonable estimate, not a punitive penalty.
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