## Earnest money deposits in California When you make an offer on a home, the seller almost always wants **earnest money** — a deposit you give up if you walk away from the deal without legal grounds. Real-estate contracts give the buyer specific paths to get the deposit BACK, and specific paths the seller can KEEP it. ### Typical earnest money in California 1-3% typical (often higher in competitive markets). ## Where earnest money is held Earnest money is NEVER given to the seller directly. It's held in escrow: - **Title company** (most common) - **Real estate broker's escrow / trust account** - **Closing attorney** (in attorney-state closings) - **Independent escrow agent** Brokers and attorneys are bound by strict trust-account rules; comingling earnest money with general funds can result in license revocation or criminal charges. ## When the buyer gets earnest money back **Common contingency-based refunds:** - **Inspection contingency** — buyer cancels after inspection reveals problems - **Financing contingency** — buyer can't get a mortgage despite good-faith effort - **Appraisal contingency** — appraisal comes in below contract price - **Title contingency** — title issues that can't be cured - **Sale of buyer's existing home** — buyer's prior home doesn't sell - **HOA / disclosure review** — material adverse information in disclosures - **Specific contractual conditions** unique to the deal **Other refund triggers:** - **Seller breach** — seller fails to perform / refuses to close - **Mutual cancellation** of the contract - **Force majeure / impossibility** events ## When the seller keeps earnest money - **Buyer waives all contingencies** and then walks away without legal grounds - **Buyer fails to act within contract deadlines** (e.g., inspection objection deadline passes without action) - **Buyer misrepresented financial qualifications** - **Buyer simply changes their mind** - **Buyer fails to close on the closing date** without legal cause ## The release-of-earnest-money problem Even when the buyer is clearly entitled to refund, the escrow agent CAN'T release without: - **Both parties signing a release** OR - **Court order** If the seller refuses to sign the release, the buyer must: - File a small-claims or civil court action - Possibly use an interpleader procedure (escrow agent files in court) - Or, if the seller has bad faith, sue for damages above the escrow amount ## State-specific quirks **Massachusetts.** 5% deposit is deposited at the Purchase & Sale (P&S) signing — a separate, larger deposit than the initial earnest money. **New York.** Residential cooperatives traditionally require 10% deposit, often held by seller's attorney. **Texas.** Earnest money + a separate **option fee** ($100-$500 typical) gives buyer unrestricted right to terminate during a defined option period (commonly 7-10 days). **North Carolina.** Splits earnest money from a non-refundable **due diligence fee** ($500-$5,000+) that pays for the buyer's investigation. ## Failure to fund earnest money If a buyer's earnest money check bounces or wire fails: - Most contracts treat as default — seller can terminate - Some give a cure period - Some impose immediate forfeit Check the contract specific provisions before assuming you have time to make good. ## Increasing the earnest money mid-deal Common scenarios where deposits increase: - **After inspection waiver / contingency removal** — additional deposit - **At P&S signing** in MA - **"Released to seller" deposits** — non-refundable from a certain date - **Specific performance scenarios** — increased deposits to lock in the deal ## Liquidated damages clauses Many contracts include **liquidated damages** clauses limiting the seller's recovery to the earnest money amount. This protects the buyer from unlimited damages but requires: - The amount must be a reasonable estimate of damages, not a penalty - The actual damages must be hard to calculate at contract time - Some states require explicit acknowledgment in the contract ## Tips for buyers - **Don't waive financing or inspection contingencies** unless you can absorb the loss - **Work with a real-estate attorney** to review contract before signing — particularly in attorney-states - **Document everything** — communications about the deal, repair issues, financing problems - **Hit deadlines** — calendar all contractual dates and act in writing - **Get all amendments in writing** — verbal agreements about deposits are dangerous ## Tips for sellers - **Review buyer's qualifications** — pre-approval, not just pre-qualification - **Don't sign a release** until you're sure buyer is entitled - **Document buyer breaches** with dated communications - **Consider non-refundable deposits** for unusual deals ## What you should do If you're in a contract dispute over earnest money in California: get a real-estate attorney involved BEFORE signing any release or final terms. Most California real-estate attorneys offer flat-fee or paid initial consultations. The amounts at stake (often $5,000-$25,000+) usually justify a few hundred dollars of legal review. --- *This guide is general information about California law as of early 2026 and is not legal advice. Earnest money rules vary by state and contract. Talk to a licensed California real-estate attorney about your specific situation.*