Earnest Money: How Much, When, and How to Protect It
The short answer
- Earnest money often runs 1-3% of the purchase price; in California it goes to escrow within 3 business days of acceptance under the standard form
- It is held by escrow, not given directly to the seller, and is credited toward your costs at closing
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Why this matters
Earnest money shows the seller you are serious. It is a deposit that goes toward your purchase — but you can lose it if you are not careful about your contract terms.
How Much to Offer
Deposits often run about 1% to 3% of the purchase price, depending on the market. In California, the standard purchase agreement has you deposit it with escrow within 3 business days of acceptance, and deposits are often higher in competitive areas. A larger deposit can strengthen your offer but puts more of your cash at risk. Your agent can tell you what is customary in your area.
Where It Goes
Earnest money is held by a neutral third party — in California, usually the escrow company. It is not paid to the seller, and at closing it is credited toward your down payment or closing costs. It is your money, not a fee. Before wiring it, confirm the instructions by phone with escrow at a number you looked up yourself.
When You Get It Back
If you cancel in writing within your contingency deadlines (inspection, financing, appraisal), you can usually get your deposit back once both sides sign escrow's release instructions. In California, the standard form gives you 17 days for most contingencies, and you remove them in writing. If you back out for a reason no contingency covers, or after removing your contingencies, the seller may be entitled to keep some or all of the deposit. If you initialed the liquidated damages clause and will live in the home, California generally caps that at 3% of the price. Know your deadlines.
Everything to remember
- Earnest money often runs 1-3% of the purchase price; in California it goes to escrow within 3 business days of acceptance under the standard form
- It is held by escrow, not given directly to the seller, and is credited toward your costs at closing
- Contingencies can protect your deposit if you cancel in writing before the deadlines
- In California, a seller's claim under the liquidated damages clause on a home you will live in is generally capped at 3% of the price
- Confirm wiring instructions by phone with escrow before you send money
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