Earnest Money Deposits in California: Amount, Timing and Refunds
An earnest money deposit in California is the good-faith money a buyer puts into escrow shortly after the seller accepts an offer. It is credited to the buyer at closing, returned if the buyer cancels properly under a contingency, and at risk if the buyer defaults after removing contingencies. How much the seller can keep depends on the contract, and for a home of one to four units the buyer plans to live in, Civil Code section 1675 presumes up to 3% of the price is a fair amount of liquidated damages if both sides initialed that clause.
This guide is for buyers writing offers in Northern California. It covers how deposits are sized, when they’re due and who holds them, what happens to the money at closing or if the deal falls apart, and how to wire it without getting robbed. For the rest of the contract, see our guide to the California Residential Purchase Agreement.
How much earnest money to offer
California has no legal minimum or standard deposit. The amount is negotiated in the offer, and the purchase agreement leaves room for an initial deposit and an optional increased deposit later in escrow.
Three percent of the price comes up often because of the liquidated damages rule described below, but it’s a reference point, not a requirement. A larger deposit can make an offer look more committed. It also raises what you could lose if you later default, so size it to the risk you’re willing to carry after your contingencies are gone.
- Initial deposit: delivered to escrow soon after acceptance.
- Increased deposit: some offers add money at a later point, often when contingencies come off. Civil Code section 1678 requires a separately initialed liquidated damages provision for each later payment if it is to count as liquidated damages.
- Cash or large down payment offers: the deposit is still only part of the buyer’s funds; the rest arrives before closing.
When the deposit is due and who holds it
The contract sets the deadline. A commonly used default in recent versions of C.A.R.’s Residential Purchase Agreement is delivery to escrow within 3 business days after acceptance. C.A.R. redesigned the RPA in December 2025, and the form text is open only to members, so read the deposit paragraph in the agreement you actually signed. Our contract deadline calculator shows how business days are counted around weekends and holidays.
Brokers have their own rule. Under 10 CCR 2832, a broker who accepts a deposit check for someone else must place it with the principal, a neutral escrow depository or the broker’s trust account within three business days of receipt. A broker can hold a check uncashed until acceptance if the buyer gives written instructions to do so and the seller is told before or when the offer is presented. Once the offer is accepted, that held check must be deposited within three business days unless the seller authorizes in writing that the broker keep holding it.
The escrow holder keeps the money in trust. Independent escrow companies are licensed by the Department of Financial Protection and Innovation (DFPI) under the Escrow Law. Financial Code section 17006 exempts some other holders, including banks and insurance companies, attorneys with a bona fide client in the deal, and real estate brokers acting as agent or party in the transaction. Ask who your escrow holder is and how it’s regulated.
What happens to the deposit at closing
The deposit isn’t an extra cost. At closing it is credited toward your down payment and closing costs. On a financed purchase, the federal Closing Disclosure shows it on a line labeled “Deposit”: in the Calculating Cash to Close table it appears as a negative number, and in the borrower’s summary it is listed among amounts already paid.
In practice, your final wire covers the cash to close after the deposit is subtracted. Check that the deposit line on the Closing Disclosure matches what escrow received. Our page on who pays closing costs covers the rest of the settlement statement, and our escrow timeline shows when each step happens.
When you get it back and when you can lose it
Most deposit outcomes follow the contingencies. While a contingency is in place, a timely, proper cancellation under its terms generally entitles the buyer to the deposit back, less costs the contract allows. Once contingencies are removed, the deposit “goes hard” in the sense that a buyer who simply fails to close may lose it.
| Situation | Usual result | What controls it |
|---|---|---|
| Buyer cancels within a contingency period, with proper notice | Deposit returned, less allowed costs | The contingency paragraph and cancellation form |
| Seller fails to perform or can’t deliver title | Buyer is generally entitled to the deposit back and may have other remedies | The contract and any notice to seller to perform |
| Buyer defaults after removing contingencies, liquidated damages clause initialed | Seller may keep the deposit, within the Civil Code 1675 limits | Liquidated damages clause and Civil Code 1675 to 1678 |
| Buyer defaults, no liquidated damages clause initialed | Seller may pursue actual damages, which could exceed the deposit | The contract and general contract law |
| Dispute over who is entitled to the money | Escrow holds the funds until both sides sign or a court or arbitrator decides | Escrow instructions and, for owner-occupied homes of one to four units, Civil Code 1057.3 |
Deadlines matter on both sides. If a contingency deadline passes without action, the seller may need to deliver a notice to buyer to perform before cancelling. Our guides to the loan contingency and appraisal contingency explain what each protects, and our page on cancelling a home purchase walks through the steps.
Liquidated damages: the 3% rule for owner-occupied homes
A liquidated damages clause sets in advance what the seller keeps if the buyer defaults. Civil Code sections 1675 through 1678 decide whether it holds up.
- Only money actually paid counts. The clause is valid only up to what the buyer actually paid, in cash or by check.
- Both parties must initial it. Under section 1677, each party must separately sign or initial the clause, and in a printed contract it must be in at least 10-point bold type, or 8-point bold in contrasting red.
- Owner-occupied homes of one to four units get a 3% line. If the buyer intends to live in the dwelling and the amount paid is 3% of the price or less, the clause is valid unless the buyer shows it’s unreasonable. Above 3%, it’s invalid unless the seller proves the amount is reasonable.
- Later payments need their own initials. Under section 1678, each payment after the first counts only if the total still meets section 1675 and a separate, compliant clause is initialed for that payment.
Section 1675 also says reasonableness is judged by the circumstances when the contract was made and by any resale of the property within six months of the buyer’s default. Newly built attached condominiums in buildings of 10 or more units have a separate accounting rule. Investment property, homes of five or more units and commercial deals follow different provisions, so read those contracts with counsel.
Getting the deposit released
Cancelling the contract and releasing the money are two separate acts. Escrow generally won’t release a deposit without instructions signed by both buyer and seller, or a court or arbitration decision.
Civil Code section 1057.3 covers purchases of property with one to four residential units where the buyer intends to live in one of them; the buyer’s stated intent when escrow opens settles that point. For those purchases, it puts a duty on both parties to see that deposited funds go to the person entitled to them when the sale doesn’t close. A party who fails to sign the release within 30 days of a written demand can be liable for the amount not held for a good-faith dispute, plus damages of three times that amount, but not less than $100 or more than $1,000, and reasonable attorney’s fees. There’s no liability if the money is withheld because of a good-faith dispute, meaning a reasonable belief in the legal right to withhold it.
The statute also says signing a release does not cancel the purchase contract unless the document says so, and it lets the escrow holder deposit disputed funds with the court once a lawsuit is filed. If the parties still disagree, the dispute-resolution paragraph in your contract decides the next step. On investment, five-plus-unit or commercial purchases, the statute doesn’t apply, so the contract and escrow instructions govern the release.
Wire fraud: protect the deposit before you send it
Deposits and down payments are prime targets. The California Department of Real Estate warns that criminals pose as escrow officers, title companies or agents and send convincing wiring instructions, and that victims have lost thousands to hundreds of thousands of dollars. Its November 2025 consumer alert describes hacked email accounts of real estate and escrow professionals used to redirect buyers’ money.
- Get contact numbers at the start. Record your escrow officer’s and agent’s phone numbers early, from a source you trust, and use them for the rest of the transaction.
- Verify every set of instructions by phone. Call escrow at the number you recorded before any wire, and treat any change in instructions sent by email or text as suspect.
- Watch the details. The DRE flags unusual email addresses and slightly changed domain names, and recommends multi-factor authentication on email accounts used for the deal.
- Consider other methods. The DRE suggests a cashier’s check delivered in person, with a receipt, as an alternative.
- Confirm receipt. Call escrow after sending to confirm the funds arrived.
If you think you’ve been targeted, call your bank immediately to try to stop the transfer, and report it to the FBI through a local field office or the Internet Crime Complaint Center (IC3), as the DRE advises.
Questions people ask
Do you get your earnest money back if you back out?
If you cancel properly under a contingency that is still in place, you’re generally entitled to it back, less costs the contract allows. If you back out after removing contingencies without a contractual reason, you may lose it.
Does earnest money go toward the down payment?
Yes. At closing the deposit is credited toward your down payment and closing costs, and the Closing Disclosure shows it on the line labeled Deposit.
How much earnest money is normal in California?
There’s no legal standard; it’s negotiated. Many buyers use 3% of the price as a reference point because of the liquidated damages rule for owner-occupied homes, but deposits can be larger or smaller.
How long do I have to deliver the deposit?
Whatever your contract says. A commonly used default in recent RPA versions is 3 business days after acceptance, but check the deposit paragraph in the version you signed.
Can the seller keep more than 3%?
For a home of one to four units that you intend to live in, a liquidated damages amount above 3% of the price is invalid unless the seller proves it is reasonable. The clause also has to be initialed by both parties.
What if the seller won’t sign the release?
Send a written demand. For an owner-occupied home of one to four units, Civil Code 1057.3 makes a party who fails to sign within 30 days liable for the amount withheld plus damages and attorney’s fees, unless the refusal rests on a good-faith dispute. On other property, the contract decides.
Is it safe to wire earnest money?
It can be, if you verify the instructions by calling escrow at a number you confirmed at the start. Never rely on wiring instructions sent or changed by email.
Writing an offer and want help sizing the deposit and the contingencies around it? Read the first-time homebuyer guide, see the full home-buying process, or talk with Diamond about buying.
This is general information, not legal advice. Whether a seller may keep your deposit turns on the exact wording of your contract and the facts of a default, so have a California real estate attorney review a deposit dispute before you sign a release or make a demand.
Sources & notes
- California Public Law: Civil Code section 1675 (liquidated damages, residential property)
- California Public Law: Civil Code section 1677 (form of liquidated damages clause)
- California Public Law: Civil Code section 1678 (subsequent payments)
- California Public Law: Civil Code section 1057.3 (release of escrow funds)
- Cornell LII: 10 CCR 2832, trust fund handling by brokers
- California Public Law: Financial Code section 17006 (Escrow Law exemptions)
- DFPI: Escrow Law (updated May 28, 2025)
- Cornell LII: 12 CFR 1026.38, Closing Disclosure content (Deposit lines)
- California DRE: Wire fraud consumer alert (reissued March 2020)
- California DRE: Consumer alert on real estate and mortgage crimes (November 3, 2025)
Note: RPA deposit timing is described as a commonly used default in recent versions; the December 2025 form is available only to C.A.R. members, so your signed contract controls.
Last reviewed October 2026 by Matthew Martinez.
