Question 1

How do liquidated damages work in real estate purchase contracts?

Accepted Answer

Real estate application: the most common liquidated damages provision in residential real estate is the seller’s right to retain the buyer’s deposit (earnest money) if the buyer defaults. The FAR/BAR residential contract includes this provision. How it works: the buyer deposits earnest money with the escrow agent at contract execution, if the buyer defaults (fails to close without a valid contingency), the seller can elect to retain the deposit as liquidated damages, and the seller waives the right to sue for additional damages (the deposit is the exclusive remedy). This benefits both parties: the buyer knows their maximum exposure (the deposit), and the seller receives compensation without the cost and uncertainty of litigation.

Question 2

What is a typical deposit amount for liquidated damages in Florida real estate?

Accepted Answer

Typical deposits: residential: 1-3% of the purchase price for lower-priced homes, 3-5% for mid-range homes, and 5-10% for luxury properties. Commercial: deposits are typically higher (5-10% of the purchase price) because commercial transactions involve more due diligence, longer closing timelines, and higher risk of default. The deposit amount should be negotiated to reflect: the seller’s anticipated loss if the buyer defaults (carrying costs, remarketing expenses, potential price decline), the buyer’s risk tolerance (the buyer wants to minimize exposure), and market conditions (in a seller’s market, sellers demand larger deposits).

Question 3

Can a Florida seller recover both the deposit and additional damages?

Accepted Answer

Generally no: if the contract contains a liquidated damages provision, the seller’s remedy is limited to retaining the deposit. The seller cannot sue for additional damages (such as the difference between the contract price and a lower resale price) unless: the contract expressly allows additional remedies beyond liquidated damages, the liquidated damages clause is struck as a penalty (in which case the seller must prove actual damages), or the buyer committed fraud (which may give rise to tort claims independent of the contract). The seller should carefully evaluate whether the deposit is sufficient to cover anticipated losses, or negotiate for a higher deposit or an actual damages provision instead.

Liquidated Damages Clause: in Real Estate

Liquidated Damages in Real Estate Purchase Contracts

How It Works

Typical Deposits

Seller Recovery Limits

Related Terms

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