When your offer gets accepted on a San Diego home, you'll be asked to deposit "earnest money" into escrow within a few business days. On a $1M home, that's typically $10,000 to $30,000 — real money, sitting in someone else's trust account, with rules about when you can get it back and when you can't. Most California buyers don't fully understand those rules until they're in a position to lose the money. Here's what earnest money actually is in California, how much is standard in San Diego, and the contingency mechanics that determine whether you get it back.
What earnest money is
Earnest money — also called "good faith deposit" or "EMD" in escrow paperwork — is a buyer-funded deposit that signals serious intent to purchase. California law doesn't require earnest money,1 but in practice every competitive offer in San Diego includes one. The deposit is held by a neutral third party — typically the escrow company or title company — never by the seller directly.2 If the deal closes, the earnest money is credited toward the buyer's closing costs or down payment. If the deal doesn't close, what happens depends entirely on contingencies and timing.
How much is typical in San Diego
The California convention is 1% to 3% of purchase price.3 San Diego sits at the upper end of that range — 2% to 3% is standard for competitive offers, with higher amounts (4–5%) used in particularly hot submarkets like coastal North County or for offers that need to stand out among multiple competing bids.
| Purchase price | 1% deposit | 2% deposit | 3% deposit |
|---|---|---|---|
| $650,000 | $6,500 | $13,000 | $19,500 |
| $925,000 | $9,250 | $18,500 | $27,750 |
| $1,500,000 | $15,000 | $30,000 | $45,000 |
| $2,500,000 | $25,000 | $50,000 | $75,000 |
The amount is fully negotiable. There's no statutory minimum or maximum, just market convention. In a multiple-offer situation in Carmel Valley or Encinitas, a 3% deposit on a $1.5M offer ($45,000) signals seriousness in a way a 1% deposit doesn't. In an inland submarket where the home has been sitting on the market, 1–2% is plenty.
The 3% liquidated damages cap
One of the most important — and most overlooked — provisions in the California Residential Purchase Agreement is the liquidated damages clause. If the buyer breaches the contract after removing all contingencies, the seller's recovery is capped at 3% of the purchase price under standard CAR contract terms.4 In practice, this means:
- If your earnest money is at or below 3% of the purchase price and you breach, you lose the entire deposit.
- If your earnest money is above 3% of the purchase price and you breach, the seller can typically only keep up to 3% — the excess is returned. (Though this depends on the contract language and whether liquidated damages was initialed.)
- If liquidated damages was not initialed on the RPA, the seller may pursue actual damages, which could exceed 3% in cases where the seller can document real loss.
The practical implication: depositing more than 3% gives you the appearance of a stronger offer without proportionally increasing your downside risk. That's why buyers in highly competitive submarkets sometimes deposit 4–5% — the marginal commitment signal is real, but the marginal at-risk amount is not.
The timing — when you have to deliver it
Under the standard California RPA, the buyer must deliver the earnest money to escrow within 1 to 3 business days of contract acceptance, unless a different timeline is specified in the contract.5 Most San Diego transactions specify 3 business days. The funds typically arrive via wire transfer or cashier's check — personal checks are sometimes accepted but slow the process and create funds-availability questions.
Failure to deliver the deposit on time is itself a breach of contract. The seller can issue a "Notice to Buyer to Perform" giving the buyer typically 2 business days to cure the breach (deliver the funds), and if the buyer doesn't, the seller can cancel and seek damages. Don't be late on this step.
When you get it back — and when you don't
The single rule that determines whether you get your earnest money back: were your contingencies still in place when you canceled?
You get it back if:
- You cancel during the inspection contingency (typically 17 days) due to property condition issues found in inspections.6
- You cancel during the appraisal contingency (typically 17 days) because the appraisal came in below the purchase price.
- You cancel during the loan contingency (typically 21 days under the current RPA) because financing fell through despite good-faith efforts.6
- The seller breaches the contract (refuses to provide disclosures, won't allow inspection access, fails to perform on agreed-upon repairs, etc.).
You lose it if:
- You've removed all contingencies in writing and then cancel for any reason short of a seller breach.
- You let contingency deadlines pass without removing or canceling. The seller can issue a Notice to Perform; if you don't respond within 2 business days, the seller can cancel and claim the deposit.
- You cancel without proper notice — verbal cancellations don't count; the CAR Cancellation of Contract form is the standard mechanism.
- You fail to act in good faith — for example, canceling under the loan contingency after never actually submitting your file to the lender, or canceling because you found a different home you liked better.
The default under the California RPA is that contingencies remain in effect until the buyer affirmatively removes them in writing. This means even after the 17- or 21-day deadline passes, your contingency hasn't expired automatically. The seller has to issue a Notice to Perform, then wait 2 business days, then cancel. This is usually buyer-friendly — but it means you can't assume "I missed the deadline, the deposit is gone." It's never gone until proper procedures are followed.
Strategic considerations
Three practical points beyond the rules:
- Larger deposits don't change the lender's calculation. Your earnest money will be credited at closing; it's not "extra" cash above your down payment. Lenders verify the source and that the funds are truly yours, but it doesn't increase your buying power.
- Source the funds well in advance. Lenders require seasoned funds (typically 2 months in your account) for any deposit large enough to materially affect the down payment. Borrowing earnest money from family without proper gift letters can fail underwriting.
- Mediation comes before litigation. The CAR contract requires mediation before either party can sue over a deposit dispute. Most San Diego earnest money disputes settle in mediation rather than going to court — but the deposit can stay frozen in escrow for weeks or months while the dispute resolves.
Run the full San Diego closing-cost picture, including earnest money.
Open the calculator →The honest read
Earnest money is not a fee — it's a deposit that becomes part of your closing funds if the deal closes. But it can become a forfeit if you don't manage your contingencies carefully. The protections in the California RPA are real and substantial; they just require you to act through proper channels and within proper timelines. Treat your contingency deadlines like court dates: track them, don't miss them, and don't remove a contingency without a clear written confirmation that the related issue has been resolved.
Earnest money rules and contract specifics vary; always work with a licensed agent and review the actual contract terms with care. Educational content only — not legal, tax, or financial advice.
References
- South Bay Residential. (2024). What Californians should know about initial deposits. Retrieved April 28, 2026, from https://www.southbayresidential.com/blog/what-californians-should-know-about-initial-deposits/
- Justin Borges. (2026, January). What is earnest money when buying a home in Los Angeles? Retrieved April 28, 2026, from https://www.lametrohomefinder.com/blog/earnest-money-buying-home-los-angeles
- SAC Attorneys LLP. (2025). Five FAQs about earnest money answered. Retrieved April 28, 2026, from https://www.sacattorneys.com/articles/five-faqs-about-earnest-money-answered/
- Balboa Real Estate. (2020). Is the earnest money deposit refundable in California? Retrieved April 28, 2026, from https://balboateam.com/is-the-earnest-money-deposit-refundable-in-california/
- Sanctuary Real Estate. (n.d.). Earnest money in California: What to know before you pay. Retrieved April 28, 2026, from https://liveyoursanctuary.com/blog/earnest-money-in-california-explained
- California Association of REALTORS. (2024). Residential Purchase Agreement (RPA-CA), Paragraph 3. Retrieved April 28, 2026, from https://www.car.org/