92nd Engineer Battalion ENBN Board Practice Exam

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A buyer made an offer on a property and gave the broker $500 earnest money. The seller accepted the offer, but the buyer decided to back out before the closing. What happens to the earnest money?

It is returned to the buyer. It is split between the broker and the seller. It is kept by the broker as a commission. It is paid to the seller as liquidated damages if the contract allows.

Correct Answer:

It is paid to the seller as liquidated damages if the contract allows.

Explanation:

Earnest money is often used as liquidated damages in the event of a buyer's default, provided the contract specifies this remedy.

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