GLOSSARY — REAL ESTATE TERMS

Earnest Money Deposit

An earnest money deposit is a good-faith sum a buyer submits shortly after their offer is accepted, held in escrow and later applied toward the purchase price at closing -- demonstrating serious intent to complete the purchase.

How much and where it's held

In California, earnest money deposits are commonly 1% to 3% of the purchase price, though the exact amount is negotiated as part of the offer. The funds are held in a neutral escrow account, not by the seller or either agent directly, until closing or a contract cancellation determines where the funds go.

When you can get it back

If a buyer cancels within an active, unremoved contingency -- inspection, loan, or appraisal -- the deposit is typically refunded. Canceling outside of an active contingency, or after removing contingencies in writing, puts the deposit at greater risk of being retained by the seller.

A concrete example

On an $800,000 offer with a 3% deposit, that's a $24,000 earnest money deposit wired into escrow within 1 to 3 business days of acceptance -- later applied toward the buyer's down payment and closing costs if the sale closes.

WHAT TO DO WHEN SUBMITTING YOUR DEPOSIT

Confirm the exact deposit amount and deadline in your purchase agreement
Verify wire instructions directly with escrow by phone before sending funds
Keep your wire confirmation on file until closing
Know which contingencies protect your deposit before removing any of them

Is earnest money the same as a down payment?

No -- earnest money is a good-faith deposit submitted early in the process and held in escrow. It's later credited toward the down payment and closing costs at closing, but it's a separate, smaller sum submitted upfront.

What happens to earnest money if the deal closes normally?

It's applied toward the buyer's down payment and closing costs as part of the final settlement.

Can a seller keep my earnest money if I simply change my mind?

If you cancel outside of an active contingency and without a contractual right to do so, the seller may have a claim to the deposit -- this is a key reason to understand your contingency deadlines.