Nearly every real estate contract contains an earnest money clause that requires the buyer to deposit some amount of money at the beginning of the transaction. The earnest money serves at least two important purposes: (1) the earnest money payment is a pledge of the buyer’s good faith and intent to proceed with the transaction; and (2) the earnest money can serve as a quasi-bond to compensate the seller for the seller’s damages if the buyer defaults on its performance obligations under the contract.

This article examines the legal limits placed on the amount of earnest money in real estate transactions. Generally speaking, in any arm’s length transaction, the parties are free to negotiate as they wish, and the courts will not interfere with the parties’ decisions. But of course, the law places certain public policy limitations and safeguards to protect the vulnerable and in furtherance of the “interests of justice.”

In this month's newsletter, Provident Law's Christopher J. Charles is laying down the law in his article, "How to Negotiate Earnest Money and Avoid the Pitfall of Forfeiting Unlawful Liquidated Damages," linked below!

Continue Reading