CAN SELLER KEEP BUYER'S DEPOSIT?

The Massachusetts Supreme Judicial Court Decides:

A few years ago, Buyers signed a Purchase and Sale Agreement to purchase a home in Worcester, Massachusetts for $355,000 from Sellers. The Buyers gave a $17,750 deposit, representing 5% of the purchase price. Clause 18 of the Purchase and Sale Agreement read: “If the BUYER shall fail to fulfill the BUYER’S agreements herein, all deposits made hereunder by the BUYER shall be retained by the SELLER as liquidated damages.”

The Buyers never purchased the property. They notified the Sellers that they could not buy the Worcester property because they were unable to sell their current home. The Sellers put the property back on the market and sold it a few months later for $360,000.

The Supreme Judicial Court of Massachusetts recently held that the Sellers were entitled to keep the $17,750 deposit given by the Buyers even though the Sellers sold the property to someone else for more money. The Court reasoned that the “liquidated damages” provision of the Purchase and Sale Agreement was reasonable at the time the Agreement was made and that the 5% potential damages were within the ordinary range for a real estate purchase and sale agreement. Where actual damages are difficult to ascertain and where the sum agreed upon by the parties at the time of the signing of the contract represents a reasonable estimate of the actual damages, such a contract will be enforced by the Court. At the time of the signing of the Purchase and Sales Agreement, the parties here could not know what delays might ensue, what might occur in the real estate market, or how a failed sale might affect the Sellers’ plans, should the Buyers not fulfill their obligation to buy the property. Five percent of the purchase price was a reasonable forecast at the time.

The answer to whether a Seller may, in fact, be entitled to keep the Buyer's deposit depends heavily on the facts of each case. 

Attorney Steven Bloom is available to represent you on your real estate matters.

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