When your offer on a home is accepted, one of the first things you’ll do is make an earnest money deposit, often called an EMD or a good faith deposit. For first-time buyers and people new to California, it can be confusing: How much is it? Who holds it? Do you get it back? This guide explains how earnest money works in California and what it means for buyers in Los Angeles.
What Is an Earnest Money Deposit?
An earnest money deposit is money a buyer puts down after the seller accepts their offer to show they’re serious about completing the purchase. Once the seller accepts your offer, they typically stop marketing the home to other buyers. Your deposit gives them some assurance that you intend to follow through.
If the sale closes, your earnest money is credited toward your down payment and closing costs. It’s not an extra fee on top of the purchase price.
Earnest Money vs. Down Payment
These two are often confused, but they’re different:
- Earnest money is paid shortly after your offer is accepted, and it’s held in escrow while you complete inspections, financing, and other steps.
- The down payment is the full portion of the purchase price you pay out of pocket at closing, with the rest covered by your loan.
In most cases, your earnest money becomes part of your down payment at closing. For example, if you’re buying a $900,000 home with 20% down, your down payment is $180,000. If you deposited $27,000 in earnest money, you’d bring the remaining amount at closing, plus closing costs.
How Much Earnest Money Is Typical in California?
There’s no fixed amount required by law. It’s negotiated as part of your offer. In California, deposits commonly run 1% to 3% of the purchase price. In competitive Los Angeles neighborhoods like Burbank, Glendale, Pasadena, Studio City, and Sherman Oaks, a larger deposit can help your offer stand out, since it signals commitment to the seller.
One thing to keep in mind: for most homes where the buyer plans to live, California limits how much of the deposit a seller can keep if the buyer defaults to 3% of the purchase price, assuming both parties initialed the liquidated damages clause. That’s one reason 3% is a common deposit amount. Learn more in our guide to when earnest money is refundable in California.
When Is Earnest Money Due?
Under the standard California purchase agreement, the deposit is typically due within three business days after your offer is accepted, unless your contract says otherwise. Have the funds ready before you write your offer so you’re not scrambling.
Where Does the Money Go?
Your earnest money doesn’t go to the seller. In Southern California, it’s held by a neutral escrow company until closing. The escrow holder releases the funds according to the contract and the written instructions of both the buyer and seller. Learn more in our guide to what escrow is and what to expect.
Protect Yourself From Wire Fraud
Most earnest money is sent by wire transfer, and real estate wire fraud is a real risk. Scammers send fake emails that look like they’re from your agent or escrow officer with “updated” wiring instructions. Before sending any money:
- Call your escrow officer at a phone number you’ve verified independently, not one from an email
- Confirm the wiring instructions by phone before you send
- Be suspicious of any last-minute change to wiring instructions
- Call to confirm the funds arrived
Can You Get Your Earnest Money Back?
Often, yes, but it depends on timing and your contract. In California, your deposit is generally protected while your contingencies are still in place, such as your inspection, loan, and appraisal contingencies. Once you remove those contingencies in writing, your deposit is at risk if you back out. The details matter, so read our full guide: Is Earnest Money Refundable in California? When Buyers Lose It and When Sellers Can Keep It.
Related reading: is earnest money refundable in California? and what escrow is and how it works in LA.
The Bottom Line
Earnest money shows the seller you’re serious, and it’s credited toward your purchase when you close. Know how much you’ll need, when it’s due, and how your contingencies protect it, and always verify wiring instructions by phone.
Buying a home in Los Angeles? I help buyers structure offers that stand out while keeping their deposit protected. Contact me to talk through your situation.
This article is for educational purposes only and is not legal advice. Please consult an experienced real estate attorney.
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