What are liquidated damages?

Liquidated damages refer to a predetermined sum that one party agrees to pay to another in the event of a breach of contract. This concept is commonly included in contracts as a way to establish a clear and agreed-upon amount of compensation for damages that would be incurred if one party fails to meet their obligations. This helps to avoid lengthy disputes over the calculation of actual damages, providing both parties with a level of certainty regarding their financial exposure should a breach occur.

In the context of real estate and manufactured home sales, including liquidated damages clauses in contracts can be particularly useful for setting expectations and minimizing potential legal complications. The other choices presented pertain to different financial aspects related to property transactions and do not define liquidated damages.