Feel free to contact me with any questions.
Is it good or bad? My buying clients have always signed it, and the one time my clients clearly breached the contract, the seller did not try to get the 3%. Part of that goes to clear communications with both sides, and the fact that the seller was immediately able to get the property into contract.
Let's start with how it works:
1. Buyer cancels contract.
2. Seller claims that buyer has defaulted.
3. Buyer claims that they had a right (contingency) to cancel.
This part of the dispute is settled first. Either the buyer had the right to cancel or they didn't. If they buyer had the right to cancel then the dispute is over & the buyer gets the depost back.
Up to this point it doesn't make any difference whether the liquidated damage provision is part of the contract or not.
The method of resolving the dispute is through mediation, arbitration (if initialed in the contract or subsequently agreed to by the buyer & the seller), or a legal action in the appropriate court.
If the buyer has defaulted the next step is to decide how much the damages are.
If Liquidated Damages was initialed - that is the amount of the damages. It is what the buyer and seller agreed to when they initialed it.
If Liquidated Damages was NOT intialed - the seller must prove how much damage they suffered.
There is no easy answer to which is better.
For the buyer, liquidated damages of 3% of the purchase price (assuming that was the depost) can be a lot of money. On a $700,000 purchase that would be $21,000. On the other hand, if liquidiated damages was not signed and the seller subsequently was only able to get $650,000, they could claim the "lost" $50,000 as part of their damages.
This is why Realtors advise their clients to seek legal advice.
A final note - an experienced Realtor will work VERY hard to avoid disputes like this by writing clear contracts and diligently helping their clients understand them.
Dilbeck Realtors, GMAC
That clause merely says if buyer backs out after contingencies are removed, seller can keep the good faith deposit of 3% as liquidated damages. If deposit is more than 3% then seller has to return amount over 3%. If you are the buyers, then they should be aware that if they don't agree, seller may not even respond to their offer. Otherwise, what good would having the active contingency removal be? A buyer who changes their mind after they remove all contingencies would suffer no consequences. What seller wants that to suffer that? I think it's a great idea to sign it. If you have any other questions, let me know.
All the best,
The Reavis Group
Keller Williams Wilshire