Liquidated Damages
An amount the parties agree in advance that one will keep or pay if the other defaults, such as retained earnest money.
Liquidated damages are a sum the parties set in the contract ahead of time as the measure of damages if one party defaults. In real estate, a contract often lets the seller keep the buyer's earnest money as liquidated damages if the buyer defaults.
Because the amount is agreed in advance, the wronged party does not have to prove the actual loss.
On the exam
Exam trap
Tested in
Contracts & Agency (13% of the exam)
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- Specific Performance
A court remedy that forces a defaulting party to complete the agreed sale, available because real property is unique.
- Earnest Money
A good-faith deposit a buyer puts down to show serious intent, held in escrow and applied at closing.
- Breach of Contract
A failure to perform a contractual obligation without legal excuse, which gives the other party remedies.
This definition is Texas real estate exam-prep education, not legal, tax, or professional advice. Verify current rules against the official source before relying on them for a real transaction. Back to the full glossary.