What You Need to Know About Earnest Money Deposits in California Real Estate Transactions

Stephanie Younger

When you make an offer on a home in California, your earnest money deposit (EMD) is one of the first—and most important—financial steps in the process. It signals to the seller that you’re a serious buyer and helps secure your interest in the property while you complete inspections, appraisals, and financing.

But how much is typical? Is it refundable? And when is it at risk?

Here’s what every buyer and seller should know about earnest money deposits in California real estate transactions.

1. What Is an Earnest Money Deposit?

An earnest money deposit is a good faith deposit made by the buyer when submitting an offer. It's held in escrow and credited toward your closing costs or down payment once the transaction is completed.

Think of it as a financial handshake: it shows you’re committed to moving forward with the purchase.

2. How Much Should You Expect to Deposit?

In California, the standard earnest money deposit is 1% to 3% of the purchase price, depending on market conditions and the level of competition.

  • For a $1,000,000 home, that typically means $10,000–$30,000.

  • In competitive markets like Los Angeles or San Francisco, some buyers offer more to strengthen their offer.

The deposit is typically due within 3 business days of offer acceptance, per the California Residential Purchase Agreement (RPA).

3. Where Does the Money Go?

Your EMD is held in an escrow account managed by a neutral third party—not by the seller or buyer directly. It remains there until the transaction closes (or is canceled under specific conditions).

At closing, the earnest money is applied toward your total funds due.

4. Is It Refundable?

Yes—but only under certain conditions.

In California, your earnest money is protected by contingency periods built into the purchase agreement. These include:

  • Inspection contingency (typically 17 days): Allows you to cancel if issues are discovered.

  • Appraisal contingency (typically 17 days): Lets you cancel if the home doesn't appraise at the purchase price.

  • Loan contingency (typically 21 days): Protects you if you're unable to secure financing.

If you cancel within the agreed-upon contingency timelines, you’re entitled to a full refund of your earnest money deposit.

5. When Is Your Deposit at Risk?

If you remove all contingencies—or let the deadlines pass—and then cancel the deal, the seller may be entitled to keep your deposit. Additionally, if you breach the contract or fail to perform (e.g., by not depositing the EMD, not showing up to sign closing docs), your deposit may be forfeited.

Pro tip: Be careful when signing contingency removal forms. Once contingencies are officially removed, your deposit is no longer protected.

6. How to Protect Your Earnest Money

  • Work with an experienced agent who can track contingency dates and manage risk.
  • Read all escrow instructions and contingency forms carefully.
  • Avoid removing contingencies unless you're fully confident in the property, your financing, and your decision.
  • Use reputable escrow companies to hold and safeguard your funds.

Final Thoughts

The earnest money deposit is more than a formality—it’s a meaningful financial commitment. Handled wisely, it keeps your transaction on track and shows sellers you’re serious. Mishandled, it can cost you thousands.

Have questions about how to structure a strong offer and protect your deposit? Let’s talk. Our team can guide you through every step of the process, from offer to closing—with confidence.

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In 2023, the Stephanie Younger Group sold more homes than any other agent or team in the city of Los Angeles, and in 2024, was recognized as a top team in California by sales volume in the RealTrends The Thousand list.

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