house roll money earnest_money_depositReal Estate Purchase Agreements and Leases (e.g. CAR forms) include deposits may or may not be refundable.    Liquidated damages must bear a reasonable relation to the anticipated damages incurred.  (See Civil Code §§1670, 1671).  For Residential transactions, if 3% or less the presumption is the liquidated damages amount is reasonable.  (Civil Code §1675(c)  Assuming the buyer refuses to allow the deposit to be released to seller, then a liquidated damages clause also benefits the seller as they do not need to prove actual damages from the loss of the sale. Civil Code 1677(a) and (b) also have some technical requirements such as 10 point bold or 8 point bold contrasting red type.  See also Allen v. Smith (2002) 94 CA4th 1270, 1282-1283)

The Civil Code §3358 general damages for benefit of the bargain does not need to be proved up.   Also consequential damages are not recovered, but the proof issue is simplified, basically becomes a one liner.  So long as the market is increasing, liquidated damages is good for a seller of  real estate.

Buyers need to argue the deposit as liquidated damages was unreasonable when it was made.   (Civil Code 1671(b))  To determine reasonableness, courts usually focus on whether the amount of money in question was within the reasonable range of harm anticipated by the seller at the time the parties entered into their agreement (Allen v. Smith (2002) 94 CA4th 1270, 1278