Have you heard you need an earnest money deposit to make an offer, but you are not sure how much to put down or what happens to that money? You are not alone. When you understand how earnest money works, you can write a confident offer that is competitive and protected. Below, you will learn the basics, typical amounts for California buyers, how the funds are handled, and how to avoid common pitfalls so you can move forward with clarity. Let’s dive in.
Earnest money explained
Earnest money is your upfront deposit that accompanies an accepted offer and is held in escrow to show you are serious about buying. If the sale closes, that deposit is applied to your down payment or closing costs. If you breach the contract after removing contingencies, the seller may have a claim to keep it as a remedy. It is not the same as your down payment or closing costs, and the amount is negotiable in the purchase agreement.
How much in Woodland Hills
In many California markets, buyers often deposit about 1 to 3 percent of the purchase price. Some buyers use flat amounts, such as 5,000 to 20,000 dollars, for lower-priced homes. In highly competitive situations, deposits can be 3 to 5 percent or more to stand out. Local norms vary by neighborhood, price tier, and how competitive the listing is, so plan your deposit with current market context in mind.
Factors that influence your deposit amount:
- Competition level and number of offers
- Price point and property type
- Whether you are financing or paying cash
- Your contingency strategy and risk tolerance
If you want a simple guide to think through sizing:
- Lower-priced or less competitive listings: about 5,000 to 10,000 dollars or near 1 percent of price
- Mid-priced homes with typical competition: 1 to 3 percent of price
- Highly competitive or luxury tiers: 3 to 5 percent or larger flat sums
How the deposit is handled
The purchase contract sets the timing for your deposit. In many cases, you will need to deposit your earnest money within 1 to 3 business days after acceptance. Follow that timeline closely to avoid a technical breach.
Your funds are deposited into an escrow account held by a neutral party such as a title or escrow company, or in some cases the seller’s brokerage or attorney, depending on local custom and contract instructions. The escrow holder follows the purchase contract and written instructions from both sides.
Acceptable payment methods often include a wire transfer, cashier’s check, or electronic deposit, based on the escrow company’s rules. Escrow typically requires good funds before key milestones and closing. Ask early about the escrow company’s requirements so you have the right method ready.
Your lender and escrow will verify that the deposit comes from an acceptable source, such as your own funds or a documented gift. Keep bank statements and any gift letters ready. Avoid undisclosed loans or unsecured advances for the deposit, since those can create underwriting problems.
If the sale closes, your earnest money is usually applied to your down payment or closing costs. You will see it credited on your final settlement statement.
Contingencies that protect you
Contingencies give you time to complete due diligence and secure financing without risking your deposit. Common examples include:
- Home inspection contingency for inspections and repair negotiations
- Appraisal contingency to protect you if the appraised value comes in low
- Loan contingency if financing cannot be obtained
- Title or other contract-specific contingencies
When your deposit is typically refundable:
- You cancel within an active contingency period as allowed by the contract
- The seller cannot meet contract obligations, such as clearing a title issue
- Both parties sign a mutual release authorizing escrow to return funds
When your deposit may be at risk:
- You remove contingencies and later default on the contract
- You miss contingency deadlines and cancel without a permitted reason
If there is a dispute, the purchase contract and California law control the process and remedies. Many contracts require mediation or arbitration for deposit disputes, and escrow will not release funds without written agreement from both parties or a court order.
Strengthen your offer without extra risk
You can present a strong offer without overexposing your deposit. Consider these options:
- Use a realistic deposit aligned with the property and competition, while keeping standard protections in place
- Tighten contingency periods only if you can complete inspections and underwriting on time
- Pair a solid preapproval and proof of funds with a clear, organized offer package
- Discuss appraisal strategy if you plan to offer near or above list price, including any appraisal gap approach that fits your budget
If you are unsure how aggressive to be, take a conservative approach and protect your deposit while you gather more information.
Step-by-step roadmap
Before you write offers:
- Decide on a deposit strategy that fits your financing and comfort level
- Make sure the funds are liquid and documented with recent statements or gift letters
- Ask for current neighborhood norms so your deposit is competitive but sensible
When you present the offer:
- Specify the deposit amount and the time frame for delivering it
- Confirm who will hold escrow and the accepted payment method
- Clarify contingency timelines for inspection, appraisal, and loan approval
After acceptance:
- Deposit your earnest money on time and keep a receipt or confirmation
- Start inspections and loan underwriting right away to meet your deadlines
- Share any source-of-funds documentation that escrow or your lender requests
If issues arise:
- Use your contingency rights within the allowed time to request repairs or cancel if needed
- If a dispute occurs, review the contract and consider mediation or arbitration as required
Avoid common pitfalls
- Removing contingencies too early to win a bidding war can put your deposit at risk if financing or the appraisal falls short
- Using borrowed or unverifiable funds for your deposit can cause loan denials or delays
- Missing contingency deadlines can limit your options for a deposit refund
- Not confirming payment method requirements can slow down your deposit and trigger a breach
When to consult Nancy on strategy
You should talk through your deposit plan early if any of these apply:
- Market competitiveness: multiple offers or fast sales suggest you may need a larger deposit or shorter timelines
- Financing concerns: low down payment or uncertain approval calls for conservative sizing and stronger protective language
- Appraisal risk: offers near or above list require a clear appraisal strategy that matches your budget
- Personal risk tolerance: if you cannot afford to risk your deposit, keep contingencies and give yourself enough time to perform
- Source-of-funds complexity: gifts, recent large deposits, or nontraditional sources should be documented to satisfy escrow and your lender
- Unusual contract terms: any nonstandard timing, escrow holder, or release provision deserves a careful review before you sign
Bringing it all together
Your earnest money deposit is a useful tool. It signals commitment, can help you win in a competitive setting, and becomes part of your funds at closing. The key is to size it correctly for the property and protect it with clear timelines and the right contingencies.
If you want a deposit strategy tailored to your exact situation, reach out for one-on-one guidance. You will get a clear plan for how much to deposit, how to structure contingencies, and how to keep your funds protected from offer to closing. Connect with Nancy Cassidy to talk through your goals and next steps.
FAQs
How much earnest money should a Woodland Hills buyer expect to pay?
- In many California markets, buyers commonly offer 1 to 3 percent of the purchase price, with higher deposits in competitive situations and smaller flat amounts on lower-priced homes.
Where does my earnest money go after my offer is accepted?
- Your deposit is placed in a neutral escrow account held by a title or escrow company, or as specified in the purchase contract and local custom.
Can I get my earnest money back if the inspection finds problems?
- Yes, if you cancel within your written inspection contingency period as allowed by the contract, your deposit is typically refundable.
What happens to my earnest money if my loan is denied?
- If you have an active loan contingency and cannot obtain financing within the allowed time, you can usually cancel and receive a refund per the contract.
Will the seller keep my earnest money if I change my mind after removing contingencies?
- If you withdraw after removing contingencies or miss deadlines and default, the seller may seek to keep the deposit as liquidated damages or pursue other remedies.
How quickly do I need to deposit the earnest money after acceptance?
- Most contracts require the deposit within a few business days, often 1 to 3. Follow your agreement’s timeline exactly to avoid a breach.
Can I use a personal check for my earnest money deposit?
- It depends on the escrow holder’s policy. Wire transfers or cashier’s checks are commonly required. Confirm acceptable methods before offer acceptance.
Does my earnest money count toward my down payment at closing?
- Yes. If the sale closes, the deposit is typically applied to your down payment or closing costs on the final settlement statement.
What documentation will my lender need for my deposit funds?
- Expect to provide recent bank statements showing the source of funds and any required gift letters for gifted money. Avoid undisclosed loans.
What can I do if I cannot afford a large earnest money deposit?
- Keep standard contingencies, present strong preapproval and proof of funds, and discuss a balanced strategy for timelines so your offer stays competitive without extra risk.
