The 3% Rule: Mastering Liquidated Damages and Deposit Caps In the California Real Estate Contract.
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The 3% Rule: Mastering Liquidated Damages and Deposit Caps In the California Real Estate Contract.
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About this listen
Deep dive into the essentials of the Liquidated Damages (LD) clause, a critical component of the Residential Purchase Agreement that dictates what happens to a deposit if a buyer defaults without a valid reason. This overview explains the strict 3% cap on 1–4 unit residential deals, illustrating how sellers are generally limited to keeping 3% of the purchase price even if the buyer’s deposit exceeds that amount. We also examine the risks of failing to initial the LD clause, which can strip the seller of the automatic right to the deposit and force them to pursue actual damages instead. Finally, learn about the common "gotchas" brokers must remember, such as why the cap applies to the total deposit paid rather than just the first check.
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