⚖️ What Is a Default Clause in Real Estate?

A default clause in real estate outlines what happens if the buyer or seller fails to perform their obligations under a purchase agreement. It defines the consequences of a breach—such as loss of earnest money, contract cancellation, or legal remedies—so both parties know their rights if the deal falls apart.

How a Default Clause Works

A default clause protects both parties by clearly defining what constitutes a “default” and what remedies are available if one party fails to uphold the contract. It commonly addresses both buyer default and seller default.

Key components include:

  • Events that count as a default (e.g., failing to close, not paying deposit, not providing required documents).
  • Buyer consequences such as forfeiting earnest money or owing damages.
  • Seller consequences such as refunding earnest money or facing specific performance.
  • Available remedies like cancellation, damages, or legal action.

The purpose is to minimize disputes by defining what happens when one party does not fulfill the contract.

Buyer Default vs. Seller Default

Buyer Default May Include:

  • Forfeiture of the earnest money deposit.
  • Termination of the contract by the seller.
  • Liability for additional damages in some states.
  • Loss of rights to purchase the property.

Seller Default May Include:

  • Returning the earnest money to the buyer.
  • The buyer seeking monetary damages.
  • The buyer pursuing specific performance to force the sale.

Example of a Default Clause

Consider a buyer purchasing a home for $450,000 with a $10,000 earnest money deposit.

The contract states:

  • If the buyer fails to close without a valid contingency, the $10,000 deposit is forfeited as damages.
  • If the seller refuses to complete the sale, the buyer may pursue damages or seek specific performance.

If the buyer simply changes their mind after contingencies are removed, they lose the $10,000. If the seller refuses to sign closing documents, the buyer can take legal action.

Why Default Clauses Matter for FSBO Sellers

FSBO sellers must rely on the purchase agreement itself—without agent guidance—to protect their interests. A strong default clause:

  • Reduces the risk of buyers backing out unexpectedly.
  • Ensures earnest money is handled properly if the buyer defaults.
  • Clarifies remedies if the seller is unable or unwilling to perform.
  • Helps avoid time-consuming and costly disputes.

Sellers using Flat Fee MLS through Brokerless often manage multiple offers; a strong default clause prevents confusion and protects their time and equity.

Frequently Asked Questions About Default Clauses

Is a default clause required in a real estate contract?
It’s standard in most purchase agreements because it defines the consequences of a breach.

Does the seller always get the earnest money if the buyer defaults?
Not always—only if contingencies have been removed and a liquidated damages clause applies.

Can a buyer sue a seller for default?
Yes. Buyers can pursue damages or seek specific performance.

Can both parties agree to waive remedies?
In some cases, yes—but most states require contracts to include minimum default protections.