Updated: Tuesday, August 30, 2016
Home Sellers Need to Understand Liquidated Damages
Liquated Damages Clause Can BE Valuable, But May Be misunderstood
Is a liquidated damages clause a good thing to have in a real estate contract? If so, for whom is it good? The buyer? The seller? Both? Like so many questions in real estate, and life in general, the first answer to such questions is, "It depends." Before we get into that, though, a word about what a liquidated damages clause is.
A liquidated damages clause sets in advance -- at the time of contract formation -- what the monetary value of damages shall be in the event of contract breach by one of the parties. Often, a liquidated damages clause actually, a paragraph or section will include a recitation that the parties are agreeing ahead of time, because it would likely be difficult to determine the actual damages should a breach occur. But such a statement is not necessary.
A liquidated damages clause could be directed toward both parties. For example, "If either of us fails to perform, he will owe the other 10,000." But it need not do so. Commonly, a liquidated damages clause will be directed towards only one. E.G., "If the commercial landlord doesnt deliver the property within fifteen days of the date promised, he will owe the tenant 10,000."
The standard residential purchase contract produced by the California Association of REALTORSCAR contains a liquidated damages clause. It says this:
"If Buyers fails to complete this purchase because of Buyers default, Seller shall retain, as liquidated damages, the deposit actually paid. If the Property is a dwelling with no more than four units, one of which Buyer intends to occupy, then the amount retained shall be no more than 3 of the purchase price. Any excess shall be returned to Buyer. >Three items are worth noting: i This provision is asymmetrical. That is, it burdens only one party, the buyer. It does not provide for any preset damages should the seller breach. Presumably, a seller breach could lead to a suit for performance. ii It is limited. For residential properties of less than five units, one of which will be occupied by the buyer, the amount cannot be more than 3 of the purchase price. This has been set by legislation Civil Code 1675. iii Payment of the damages would still require the agreement by signatures of both parties. That is because there has to be agreement that there has been a breach. Otherwise, a judicial or arbitration conclusion will have to be reached.
Signing or initialing a liquidated damages clause is optional. Although it is preprinted into the CAR purchase agreement, it will only apply if both parties so indicate. This is where problems, based on misunderstanding, may arise.
Commonly, when encountering a liquidated damages clause, a principal is liable to ask, "What does this mean?" It would not be unusual for an agent to say something like, "This means that if the buyer breaches, the seller gets to keep the deposit." That, unfortunately, does not go far enough in explanation for many sellers. They need to know that it means that, in the event of breach, they would be entitled to no more than the deposit or no more than 3 of the purchase price, if the deposit is larger than that. Often, when buyers have breached a contract, the seller feels wounded and entitled to more than the deposit. If a liquidated damages clause is in effect, that will not be an outcome.
Let us consider some possibilities. Say the purchase price of a single family home intended for owner occupancy is 300,000. The liquidated damages limit is 3 of the purchase price -- 9,000. Suppose the CAR liquidated damages provision has been signed and that the buyer subsequently breaches.
a The deposit is 5,000. The seller has a right to the 5,000; but not to pursue the buyer for the additional 4,000. Liquidated damages is limited to the amount of deposit actually paid.
b The deposit is 15,000. The seller is entitled only to 9,000, the statutory limit.
c The original deposit is 5,000, but it had subsequently been increased by another 5,000.
i If the increased deposit was accompanied by a separate liquidated damages provision CAR form R.I.D., Increased Deposit/Liquidated Damages Addendum, signed by both parties, then the seller would be entitled to 9,000 of the 10,000 actually paid.
ii If the deposit had been increased by 5,000, but no separate liquidated damages provision had been executed, then the seller would only be entitled to the original 5,000.
Is a liquidated damages clause a good thing? For both buyers and sellers the answer may be yes and no. It depends. Suppose the buyer backs out -- breaches -- very early into the transaction. Typically, that would not cause a lot of damage to the seller. A liquidated damages provision may give too much to the seller. Conversely, a seller who has gone through a long escrow and who has made plans and commitments -- sometimes financial -- may feel that limiting the damages to the deposit or 3 of the price is not sufficient.
For both parties, though, if they have agreed to a liquidated damages provision, they at least know what is at stake.
Bob Hunt is a director of the California Association of Realtors. He is the author of Real Estate the Ethical Way. His email address is .
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Why What Have I Missed? Is Not The Best Question
The summers rolling to a close whether we want to admit it or not. For those whove taken time off to get away on vacation or who unplugged and disappeared into a staycation, a popular question to ask on returning to the office is, "What have I missed?" Realistically, this may not be the best question for real estate professionals to consider first.
Professionals who take a break, however long, always benefit from asking themselves "What have I learned?" before they get sucked into their old routines and before their mellow state disappears into a bulging inbox.
Returning vacationers who skip this question and their response to it, lose an important 5-pronged opportunity for painless improvement. Remember, its not the vacation, but what you do with the benefits of taking a vacation that count:
1. Absence Accentuates
Putting distancereal or virtualbetween you and the daily grind provides you with valuable perspectives on what has really been going on and what really matters to you. While away, you may become aware of time wasters to eliminate, negative forces to neutralize, and positive forces to strengthen when you return. "Absence makes the heart grow fonder" to reveal people and things that matter most to you. Sometimes this realization may surprise you. Reflecting on what you learned while absent from work, friends, home, communitywill help you project into the future as you decide where and how to concentrate your energy and efforts. Whether this enhanced awareness leads to small changes or significant shifts, thats part of why getting away to gain perspective is valuable.
2. Subconscious ruminating
Even if you did not consciously give work a thought while on vacation, your subconscious was churning away. Take time to connect with this processing force and learn what you really think about how your life and work have unfolded. If you dread returning to the office, maybe you shouldnt. Asking yourself "What have I learned?" may give rise to the realization that it is time for a change of target client, where you work, how you workor whatever you discover. Perhaps youll decide its time to move to a new home or community. Take the time to reconnect with yourself before the hectic pace of real estate swallows you up again.
3. Revisit Your Dreams
At the start of the year, you had dreams of what could happen for you and those that matter to you this year. Did you set goals and identify "A-tasks" which would trigger goal achievement? Find that list of dreams you intended to act on or make a new list. Launch a fresh start at making your goals a reality. Go forward with purposeyour purpose.
4. Theres No "Back"
We always say "Im going back to"like "back to work"but theres no "back." When you return to the office, virtual or otherwise, things will have changed. They cannot be put back to what they were when you left. We should say, "Im going forward to work" because we are leaping in at a new point in time, not time-traveling backward. Think about this for a moment. Not "back," but "forward to a fresh start." With that in mind, what will you do differently to make the most of this renewal? What will you eliminate or just not restart? Which new people and things will you make time for? Write down the improvements you decide on; that simple action will help make things happen.
5. Thanks All Round
Thank the people who may have helped you get this far. Be thankful you have been able to get away, recharge, and give your brain time to process all that fills your life.
Whether you craved a break to recharge or sought out pure mindless fun, think things through as you transition.
Start by repeating this question to yourself a few times: "What have I learned?" >
If your vacation lies ahead, let these ideas make your up-coming adventure a great get-a-way on all counts.
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How To Choose The Best Nightstand For Your Bedroom
Despite being one of the smaller items in the bedroom, the nightstand is an influential piece. Not only does it provide an important function as the keeper of your remote, book, glasses, and bottle of water, it also helps bring the rooms design together.
"These handy tables are mostly for storage, but they also provide a decorative function by anchoring the look of your bed," said Houzz. "Because of its double-duty purpose, your bedside table needs to be both functional and aesthetically pleasing, and therefore should include several shelves and drawers that match the traditional >
Confused about what to buy? Get some ideas and inspiration here.
The Saarinen Tulip-inspired side table brings a modern touch to any space and plays nicely off of the eclectic bedding and accessories.
If your >
traditional nightstands and bedside tables
Make it worldly
The area beside your bed is the perfect opportunity to show off your travelsor at least pretend to be more exotic than you are.gt;
Do double duty
"The desk-as-nightstand setup, seen here in a bedroom from Lonny, is a great way to make furniture do double duty in small apartments," said Apartment Therapy.
The statement piece
"Thanks to the intricate metal detailing, this nightstand makes the ideal statement piece," said Elle Dcor.
Make it tech friendly
Want your nightstand to do some real work for you? Keep your eye on the Curvilux smart nightstand, which "boasts smartphone connectivity, a built-in speaker system, and LED lights capable of being set to mimic a sunrise, among a handful of other features," said Digital Trends. Its currently being crowdfunded.
Weathered-looking wood, clean lines, and two drawers to hold plenty of your stuff make this a wining choice.
Make it disappear
Sometimes, the best nightstand is the one you cant really see. "For a bright, open look, consider nightstands that dont steal visual space. One trendy option: bedside tables with a mirrored finish that bounces light around the room," said HGTV. "Or follow the lead of the designers at Carlyn amp; Co. and surround the bed with a pair of glass shelves. "They create a light and airy feeling yet provide storage for all your nighttime needs like a reading lamp, books, a clock and glasses - all in one neat and organized spot."
Parsons tables raise the height of the typical nightstand, which is great for a large room, one with a raised bed, or one with especially high ceilings
Photo by For People design - Browse eclectic bedroom photos
Dangerous curves ahead
This Vera Side Table is perfect for throwing a curveball at your otherwise linear room or adding to an existing theme. Plus, the "warm red-orange hue make this side table undeniably chic," said Elle Dcor.
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