Wisconsin Real Estate Sales Practice Exam

According to the terms of the offer to purchase, can a seller keep the buyer's earnest money and sue the buyer for damages?

1. Yes, they can do both

2. No, one or the other

3. Only if there is a breach

4. Only if negotiated in advance

The correct answer is: No, one or the other

In real estate transactions, the treatment of earnest money is typically governed by the terms outlined in the purchase agreement and state laws. When a buyer provides earnest money, it serves as a deposit indicating their serious intent to follow through with the purchase. If the buyer breaches the contract, the seller might have the right to retain the earnest money as a form of compensation for their potential losses or as stipulated in the terms of the agreement. Choosing to retain the earnest money and simultaneously suing for damages would generally be considered a double recovery for the seller. Most legal frameworks encourage parties to choose one remedy or the other to avoid unfair enrichment. Therefore, if the seller opts to keep the earnest money, they forgo the right to seek additional damages. This principle is rooted in contract law practicality, as pursuing both paths can be seen as contradictory. It emphasizes the need for clarity and fairness in the enforcement of contracts, ensuring that a single breach results in a single form of remedy rather than multiple overlapping claims.