Missing the Deadline Is Not What Costs You Your Deposit. Signing One Form Is.

In California, contingencies do not expire on their own. They stay in effect until you remove them in writing. Your deposit generally remains refundable while a contingency is still active, and becomes at risk once you sign a removal form and then cancel without a legal basis for doing so.

Almost every buyer I work with arrives believing the same thing about earnest money, and it comes from reading advice written for other states. The belief is that deadlines are cliffs. Day 17 passes, the protection evaporates, and the deposit is gone. That is how it works in some places. It is not how the standard California contract works, and the difference is worth thousands of dollars to understand correctly.

How much is it, and who holds it?

Typically 1 to 3 percent of the purchase price. On a $700,000 purchase in San Diego North County, that is somewhere between $7,000 and $21,000, with the initial deposit commonly due to escrow within about three business days of acceptance.

It never goes to the seller. A neutral escrow holder keeps it, and neither party can touch it without meeting contract conditions. At closing it is credited toward your down payment or closing costs, so it is not an extra cost. It is money you were bringing anyway, just arriving earlier.

Worth noting for anyone who has bought elsewhere: California does not use non-refundable due diligence or option fees the way states like Texas and North Carolina do. There is no separate check written directly to the seller for the right to inspect.

What actually protects the deposit?

Contingencies. Each one covers a different failure point, and each has its own clock.

These are defaults, not laws. Every one of them is negotiable, and your specific purchase agreement is what governs. Read the dates in your own contract rather than assuming the standard ones apply.

So when does the deposit actually become at risk?

When you sign the removal. Not when a date passes.

Under the standard California approach, contingencies must be removed in writing. If your longest period runs out on day 21 and you have not signed anything, the contingency generally remains in effect past that date. The seller's remedy is to serve a notice to perform, which starts a separate clock and forces the issue, but the deadline alone does not quietly strip your protection.

That single mechanic is the thing most buyers have backwards. The risk is not a calendar event. It is a signature.

How much can a seller actually keep?

Less than most people fear. California Civil Code section 1675 caps liquidated damages at 3 percent of the purchase price in qualifying residential transactions. And section 1677 requires that the liquidated damages clause be separately signed or initialed and appear in a specific format. When those formalities are not met, the clause may not be enforceable at all.

There is also a practical layer. Escrow will not release a disputed deposit to either side without mutual written instructions, or an order from a court or arbitrator. So a seller cannot simply claim it. A dispute over an earnest money deposit is a process, not an instant forfeiture.

What this means if you are on a PCS timeline

Sellers in a fast market often push for early contingency removal to make a deal feel more secure, and a military buyer with a report date bearing down feels that pressure more than most. Removing early does strengthen your position with a seller. It also transfers real risk onto you before your answers are in.

For veterans and first time buyers especially, the honest tradeoff is worth saying out loud. Early removal is a negotiating tool, not a formality, and it should be a deliberate decision rather than something you sign because it was handed to you with the rest of the paperwork.

If you are weighing an offer and want the contingency dates mapped against your actual timeline, call or text me at (619) 485-8293, or reach me through my Connect page.

Ask Your Agent This

Two questions to ask before you sign anything:

• "What are the exact contingency dates in my contract, and which ones are still active as of today?"
• "If the seller asks for early removal, what specifically am I giving up, and what am I getting in return?"

Frequently Asked Questions

When do you lose your earnest money in California?

Generally after contingencies have been removed in writing and the buyer then cancels without a legal basis. Cancelling properly during an active contingency period typically entitles the buyer to a full refund.

Does the seller keep my deposit automatically if I back out?

No. Escrow requires mutual written instructions or an order from a court or arbitrator to release disputed funds, and liquidated damages are capped at 3 percent of the purchase price in qualifying residential deals.

Is a bigger deposit a stronger offer?

It can read as more serious to a seller, which is why buyers in competitive situations sometimes increase it. It also puts more of your money into the transaction, so it is a real tradeoff rather than a free way to look committed.

What if the seller is the one who backs out?

The buyer can generally recover the deposit and may have other remedies depending on the agreement. The protection is not one directional.

Did anyone explain the removal form to you before you signed it, or did it just show up in a stack? I ask because the answer is almost always the second one, and it should not be. More on VA loans and buying in San Diego North County is on the blog.

This content is for informational purposes only and is not legal advice. Contract terms, contingency periods, and remedies vary by agreement and situation, and California law is summarized here in general terms only. Consult a licensed California real estate attorney regarding any specific transaction or dispute. All real estate services comply with NAR, HUD, and California DRE regulations.