What are liquidated damages in a real estate contract?

Liquidated damages in a real estate contract refer specifically to the predetermined penalties that the parties agree upon within the contract in the event of a breach. This means that if one party fails to fulfill their obligations as outlined in the agreement, the other party can claim these specified damages without needing to prove the actual loss they incurred due to the breach.

This concept is essential as it provides clarity and predictability for both parties, as they understand in advance the financial consequences of a breach. It can often help reduce disputes and facilitate smoother transactions since both parties are aware of the repercussions should the terms not be met.

In this context, the other options miss the mark on what liquidated damages specifically entail. While a judge determining damages might occur in a different scenario, it does not relate to the agreed-upon nature of liquidated damages. Non-financial penalties don't align with the monetary aspect that liquidated damages represent, and additional fees charged at closing are typically unrelated financial obligations that do not pertain to breach of contract scenarios.