What do "liquidated damages" refer to in real estate contracts?

"Liquidated damages" in real estate contracts refer to a predetermined amount of money that the parties agree upon at the outset of the contract, which will be awarded if one party breaches the contract. This concept allows the parties to avoid the uncertainty associated with calculating actual damages after a breach occurs. By stipulating a specific amount, both the buyer and seller have clarity around the consequences of not fulfilling the contract terms, which can help encourage compliance with the agreement.

This predetermined amount serves to both provide a form of compensation to the aggrieved party and to deter breach of contract, as both parties have a clear understanding of potential financial repercussions from the beginning. In many cases, it's easier and less contentious for the parties involved to agree on these terms upfront rather than dealing with complex assessments of damages later in the event of a dispute.

While regular fees for property maintenance, funds held in escrow, and costs associated with property maintenance are important aspects of real estate transactions, they do not pertain to the concept of liquidated damages, which is specifically about predetermined compensation for breach of contract.