How Much Earnest Money Deposit Should I Offer?
In California, earnest money deposits (also called good faith deposits) are typically 1% to 3% of the purchase price, though the amount is negotiable and can vary by market conditions and the level of competition.
What Earnest Money Is
Earnest money is a deposit made by the buyer with their offer, held in escrow by a neutral third party. It demonstrates your seriousness as a buyer and is applied toward your down payment or closing costs at closing.
Typical Range
In most California transactions, earnest money runs 1% to 3% of the purchase price. In highly competitive markets, some buyers offer higher deposits to strengthen their offers. There is no legal minimum required.
How It Works
The deposit is typically due within three business days of an accepted offer and is held in escrow. While your contingencies remain in effect, you may have contractual cancellation rights under the terms of the purchase agreement. Whether and how the deposit is handled or returned depends on the specific terms of your agreement, the timing and circumstances of any cancellation, and proper exercise of those rights.
The 3% Liquidated-Damages Framework in California
Under California Civil Code, liquidated damages in residential real estate transactions are generally limited to 3% of the purchase price. Amounts above 3% may be presumptively invalid. This is a California legal framework that governs what a seller may be entitled to retain if the buyer defaults, not a recommendation about how much a buyer should deposit. The right amount for your offer depends on market conditions, the purchase price, and your specific situation. Consult a qualified professional for guidance tailored to your transaction.
Helpful Resources
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The right earnest money amount depends on your market and situation. Contact me to discuss what makes sense for your offer.
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