Real estate glossary
Liquidated damages
A clause that sets in advance what the seller can keep — usually the deposit — if the buyer defaults on the purchase.
A liquidated damages clause agrees ahead of time on the seller's compensation if the buyer breaches the contract, usually the buyer's deposit. In exchange, the seller generally gives up the right to sue for larger damages.
In California the clause only applies if both buyer and seller initial it. For a home with one to four units that the buyer intends to live in, the amount the seller can keep is generally capped at 3% of the purchase price, with any excess returned to the buyer.
What it means for you as a seller
Decide whether to initial this clause with your agent's help. It trades a possibly larger claim for a simpler, faster remedy.
Related terms
Not legal or tax advice. These explanations are general information to help you follow your own transaction. Laws, forms and customs vary by state and county, and the terms of your own contract always control. For advice about your situation, talk to your real estate agent, a real estate attorney or a tax professional. Last updated .