What Is This Clause?
A clause that allows the builder to keep the buyer's entire deposit (earnest money) if the buyer fails to close for any reason, including reasons related to construction defects or incomplete work. Deposits on new construction homes can range from 1% to 15% of the purchase price.
How It Works
When you sign a new construction purchase agreement, you typically put down a deposit — often called earnest money. This can range from a few thousand dollars to tens of thousands, depending on the home's price and the builder's requirements. The deposit is meant to show good faith that you intend to complete the purchase.
A deposit forfeiture clause states that if you do not close on the home for any reason, the builder can keep your entire deposit as 'liquidated damages.' In many builder contracts, there is no exception for the buyer discovering construction defects, the home failing inspection, or the builder failing to complete the work on time.
This creates enormous pressure to close even when problems are discovered. A buyer who finds serious issues during their final walkthrough faces a painful choice: close on a defective home, or walk away and lose a deposit that could be $20,000 to $60,000 or more.
Why It Matters
If you discover defects at closing, you may lose your deposit if you refuse to close — creating pressure to accept a defective home.
On a $400,000 home with a 5% deposit, you could forfeit $20,000 if you choose not to close.
Some contracts set liquidated damages as high as 15% of the purchase price, potentially $60,000 or more.
The clause may apply even if the builder causes the delay or fails to complete the home on time.
Real-World Cases
Liquidated Damages in Florida Real Estate
Florida courts have held that liquidated damages clauses must be a reasonable estimate of anticipated harm and not a penalty. If a deposit forfeiture amount is disproportionate to the builder's actual damages, it may be challenged as an unenforceable penalty.
Which Builders Use This Clause
The following builders have been documented using this clause type in their purchase agreements.
State-by-State Enforceability
Deposit forfeiture clauses are generally enforceable as liquidated damages provisions, provided the amount is a reasonable estimate of the builder's anticipated harm. Courts in many states will scrutinize whether the forfeiture amount is proportionate. Excessive forfeiture amounts may be challenged as unenforceable penalties, but the burden of proof typically falls on the buyer.
What Buyers Can Do
- 1Know the exact dollar amount of your deposit and what percentage of the purchase price it represents.
- 2Read the contract carefully to understand under what circumstances your deposit can be forfeited.
- 3Ask whether any exceptions exist for forfeiture — for example, if the builder fails to obtain a certificate of occupancy or if material defects are discovered.
- 4Consider negotiating a lower deposit amount or a provision that allows refund under specific conditions such as failed inspections.
- 5Consult with a real estate attorney before signing if the deposit amount is substantial.