Earnest Money in California, Explained

Writing a check before you even get the keys can feel risky. In California, earnest money is a normal part of buying or selling a home, but the rules and timing matter. You want to know how much to put down, when it’s due, and how to keep it safe. This guide breaks down the California essentials so you can move forward with confidence. Let’s dive in.

Earnest money basics

Earnest money is a good-faith deposit you, as the buyer, include with your offer. It shows the seller you’re serious. If the sale closes, the deposit is applied to your costs at closing. It is not a separate fee. It is part of your funds toward the purchase.

In many markets, deposits often range from about 1% to 3% of the purchase price. In competitive or high-price California areas, you may see larger deposits to strengthen an offer. The exact amount is negotiable and depends on local market norms, price tier, and your strategy.

California escrow: who holds your deposit

In California, your deposit typically goes to the escrow holder, which is usually an escrow or title company. These companies place the funds into a trust account and follow the purchase agreement and escrow instructions. Sometimes a listing broker may receive the check first, but they must promptly place it into escrow or a permitted trust account under state rules.

You should always get written confirmation that escrow received your funds. A receipt or email from the escrow officer works. Keep this with your records.

When the deposit is due

The purchase agreement sets the deadline for delivering your deposit. In California, many transactions use the California Association of Realtors Residential Purchase Agreement. It commonly requires the deposit within a short window after acceptance, often within 1 to 3 business days. Your exact timeline is whatever your contract states.

Deliver the money promptly so escrow can open and the transaction timeline can start. Your agent and escrow officer will give you instructions.

Contingencies and your right to a refund

Contingencies protect your deposit if certain conditions are not met. Common buyer protections include:

• Loan or financing contingency
• Appraisal contingency
• Inspection contingency
• Title or HOA document review contingency

If you cancel properly under a valid contingency and within the deadlines, your earnest money is generally refundable. You must follow the contract’s notice procedures and timelines. Escrow returns the funds according to the purchase agreement and escrow instructions.

When the seller might keep the deposit

If a buyer breaches the contract, the seller may be entitled to keep the deposit or seek other remedies, depending on the agreement. Many California contracts include a liquidated damages provision. If both parties initial and agree to it, that clause can allow the seller to accept the deposit as their remedy if the buyer defaults. The details depend on the contract terms and the facts of the situation.

If there is a dispute, escrow will not release funds unless the parties give mutual written instructions, or a court or arbitrator orders it. Without agreement, the money stays in escrow until the conflict is resolved.

How disputes get resolved

Most deposit disputes settle through negotiation. If that does not work, the purchase contract may require mediation or arbitration. Some parties file a lawsuit. In those cases, decision-makers look at the contract, the contingency notices, whether deadlines were met, and whether damages were mitigated. While this is rare relative to the number of successful closings, it is important to follow your contract precisely.

How much to offer in California

Start with local context. In quieter markets, 1% may be enough. In highly competitive areas, larger deposits can help your offer stand out. Balance signaling strength with protecting your risk. If you are increasing your deposit to be more competitive, make sure your contingency periods are realistic and your financing plan is solid.

Talk with your agent about norms in your area and price tier. The goal is to offer enough to be taken seriously without overexposing yourself.

Protecting your deposit: buyer checklist

• Build in key contingencies. Include financing, appraisal, inspection, and title or HOA review if applicable. Keep deadlines realistic.
• Track every deadline. Put contingency removal dates and closing milestones on your calendar. Ask your agent and escrow for reminders.
• Deliver funds securely. Use a cashier’s check or wire per escrow instructions. If wiring funds, call the escrow company using a verified phone number to confirm instructions before you send money.
• Keep proof. Save your escrow receipt, deposit slip, or confirmation email.
• Communicate in writing. Use the proper forms for contingency removals and notices. Keep a clean paper trail.

Strategic use of deposits: seller guide

• Set the right expectation. Request a deposit amount that aligns with your market and price point. It should be meaningful enough to discourage casual offers.
• Clarify remedies in the contract. Work with your agent to use the appropriate purchase agreement language and consider liquidated damages provisions as allowed by the form. Ensure initials are placed where required.
• Follow escrow procedure. Do not attempt to release or redirect funds unilaterally. Escrow will only disburse based on mutual instructions, a court order, or the contract’s specified conditions.

Payment methods and security

Common methods include personal check for small amounts, cashier’s check, and wire transfer. For larger deposits, escrow often prefers cashier’s checks or wires. Always verify wiring instructions by calling the escrow office on a known, trusted number. Be cautious with any last-minute changes to instructions, especially by email.

Documentation to save

• Escrow deposit receipt or confirmation
• Copy of the signed purchase agreement and escrow instructions
• Any contingency notices and removals
• Amendments or addenda that change the deposit amount or timing
• Final escrow statement

Keeping complete records helps if questions arise later.

Timelines at a glance

• Offer accepted: escrow opens and the deposit clock starts per your contract.
• Within 1 to 3 business days in many cases: initial deposit due to escrow, unless your contract states a different timeframe.
• During contingency periods: inspections, appraisal, loan approval, and document reviews occur. You decide whether to remove contingencies or cancel per the contract.
• Before closing: funds are applied to your closing costs or price. If canceled under a valid contingency, escrow moves to return funds based on the agreement.

If you believe funds are being withheld unfairly

First, review your purchase agreement, contingency timelines, and any notices. Then contact your agent and the escrow officer to explain your position and request an accounting. If you cannot reach agreement, consider the dispute resolution steps in your contract. Escrow typically cannot release money without mutual written instructions or a legal directive.

Key forms and parties in California

• California Association of Realtors Residential Purchase Agreement and related forms
• Escrow instructions and opening letter
• Contingency removal forms
• Escrow company or title company holding the trust account
• Real estate brokers and agents who must follow state trust-fund handling rules

Bottom line

Your earnest money deposit signals commitment and can strengthen your position in a California transaction. Set the amount strategically, meet your deadlines, and use contingencies wisely. With the right planning and documentation, you can keep your deposit secure and move smoothly to closing.

If you want a calm, well-coordinated process with strong advocacy on deposit strategy and timelines, let’s connect. Contact Sanctuary Real Estate to Start Your Sanctuary — Request a Consultation.

FAQs

What is earnest money vs. down payment in California?

• Earnest money is a good-faith deposit held in escrow and applied at closing, while the down payment is the larger portion you bring to fund the purchase price at closing.

How much earnest money is typical in California?

• Amounts vary by market, but many deposits fall around 1% to 3% of the price, with higher amounts common in competitive areas to strengthen an offer.

Who holds my earnest money in California?

• Escrow or title companies typically hold the deposit in a trust account and follow the purchase agreement and escrow instructions.

When is earnest money refundable in California?

• If you cancel properly under a valid contingency within the contract deadlines and procedures, the deposit is generally refundable through escrow.

Can a seller keep my deposit if I change my mind?

• If you cancel outside of your contingency protections or breach the contract, the seller may be entitled to keep the deposit depending on the agreement, including any liquidated damages clause.

What happens if the seller backs out in California?

• The outcome depends on the purchase agreement and dispute resolution terms; escrow disburses funds only with mutual written instructions or a legal directive.

How do I pay earnest money safely?

• Use a cashier’s check or wire to escrow and always verify wiring instructions by calling the escrow company at a known phone number before sending funds.

What proof should I keep after paying?

• Keep the escrow receipt or confirmation, plus your signed purchase agreement, escrow instructions, contingency notices, and any addenda.

How fast do I have to deposit after acceptance?

• Many California contracts require the deposit within 1 to 3 business days of acceptance, but follow the exact timeline stated in your agreement.