In a real estate sales contract, what is 'liquidated damages'?

LIQUIDATED DAMAGES: An amount agreed upon IN ADVANCE in the contract as the compensation a party will receive if the other party breaches/defaults — avoiding the need to prove actual damages later. IN REAL ESTATE: Commonly, if the BUYER defaults (backs out without a valid contingency), the SELLER may keep the EARNEST MONEY DEPOSIT as liquidated damages; the contract specifies this remedy; PURPOSE: Provides certainty and avoids litigation over actual damages; the amount must be a reasonable estimate of potential damages (not a penalty — courts may not enforce amounts that are punitive rather than compensatory); EARNEST MONEY: The deposit the buyer puts down to show good faith; if the buyer defaults, it may be forfeited as liquidated damages; if the buyer cancels under a valid contingency (financing, inspection, appraisal), they typically get it back; OTHER REMEDIES for breach: specific performance (court orders completion of the sale), actual damages, rescission; liquidated damages is a key contract remedy concept on the national exam — a pre-agreed sum (often earnest money) that compensates without proving actual loss.