Earnest money is a deposit you make after your offer is accepted to show you are serious. In California it is typically 1% to 3% of the purchase price, due within three business days of acceptance, and it counts toward your purchase. You generally get it back if you cancel in writing, on time, for a reason your contract allows. Miss a deadline and it can be at risk.
What is earnest money?
It is a good-faith deposit held by a neutral escrow company, not by the seller or by me. When you close, the deposit is credited toward your down payment or closing costs. If you cancel properly under a contingency, escrow returns it to you.
How much is it and when is it due?
BayLegal describes the typical initial deposit as 1% to 3% of the purchase price, paid within three business days after the contract is accepted. On a $450,000 home, that is $4,500 to $13,500. This is an illustration of the range, not a rule for any one deal. Your offer sets the amount, and a stronger deposit can make an offer more competitive.
When can a buyer lose the deposit?
A seller may be able to keep it when the buyer has removed contingencies and then refuses to close without a legal basis, or materially breaches the contract, such as failing to fund closing after removing the loan contingency. Even then, retention is generally capped at the contract's liquidated damages limit.
What is the 3% rule?
Under California Civil Code section 1675, a liquidated damages clause in a qualifying residential contract is presumed valid if it does not exceed 3% of the purchase price. The clause must be separately signed or initialed in 8-point boldface or larger type. Amounts above 3% are presumptively invalid unless the seller shows the higher amount was reasonable when the contract was made. Whether this applies to your contract depends on the property and the contract, so ask an attorney about your own deal.
What protects the deposit?
Contingencies are the contract's built-in exits. On the typical C.A.R. form, per the BayLegal summary, the periods are:
- Inspection: 17 days.
- Appraisal: 17 days.
- Loan: 21 days.
- HOA documents: a review period after the packet is delivered.
- Title: based on defects in the preliminary title report.
Cancel in writing before the deadline for the contingency you are relying on. Removing a contingency early, or waiving it to compete, shifts risk to you. Talk through each one with me before you sign. For the timeline, see how long escrow takes in Chico.
When do you get a full refund?
BayLegal says a buyer gets a full refund when the buyer cancels in writing, within an active contingency period, for a reason the contract allows.
Frequently Asked Questions
How much earnest money do I need in California?
Typically 1% to 3% of the purchase price, per BayLegal. Your offer sets the actual amount.
When is the deposit due?
Within three business days after the contract is accepted.
Who holds the money?
A neutral escrow company.
Can I lose my deposit?
Yes, if you remove contingencies and then fail to close without a legal basis. Retention is generally capped at the contract's liquidated damages limit.
Does the deposit go toward my purchase?
Yes. It is credited at closing.
General information, not legal advice. Contract terms and deadlines vary, so confirm yours with your agent, your escrow officer and a California real estate attorney. Want to walk through a specific offer? Call or text me at 707-672-6549. Happy to help.
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