Have you heard the term “earnest money” and wondered how much you should put down or what happens if a deal falls through? In Saratoga and greater Santa Clara County, where prices are high and competition is real, your deposit can be the difference between winning a home and taking on too much risk. You deserve a clear, local guide that explains how earnest money works in California and how to protect it. In this guide, you’ll learn what earnest money is, typical deposit amounts in our market, contract timelines, how contingencies affect refunds, and smart offer strategies. Let’s dive in.
What earnest money is
Earnest money is a good‑faith deposit you place into escrow with your accepted offer to show the seller you intend to buy. It is credited toward your purchase price and closing costs at closing. If you cancel or default outside the contract rules, some or all of it can be at risk.
In California, the purchase agreement controls how earnest money is handled. Most buyers and sellers use the California Association of REALTORS Residential Purchase Agreement, which sets the deposit timeline, escrow instructions, and contingency windows. The exact amounts and dates are negotiated and written into your contract.
How much to offer in Saratoga
There is no single standard deposit amount. In many places, 1% to 3% of the purchase price is common. In high‑priced, competitive Silicon Valley markets like Saratoga, buyers often strengthen offers with 3% to 5% deposits or more when competition is intense. Your final number should match your strategy, the property’s demand, and your comfort with risk.
A few examples help put this in context:
- $1,000,000 home: 1% is $10,000 and 3% is $30,000.
- $2,000,000 home: 1% is $20,000 and 3% is $60,000.
- $3,000,000 home: 1% is $30,000 and 3% is $90,000.
Larger deposits can make your offer more persuasive, especially if you also shorten contingency periods. They also increase the dollars you put at risk if you later default. Align the deposit with your financing, contingencies, and timeline.
Where your deposit goes and when
In California, your deposit is typically held by an independent escrow or title company named in the contract. Funds are delivered by wire transfer or cashier’s check. Some escrow holders require certified funds at certain stages, so confirm the method and timing with your agent and escrow officer.
The contract sets the deposit deadline. Locally, it is often due within a short window, such as 1 to 3 business days after acceptance, though the exact timing is whatever you and the seller agree to in writing. Escrow generally opens shortly after acceptance and the deposit delivery, often within 24 to 72 hours depending on the company’s workflow.
Contingencies and your refund rights
Contingencies are your contract protections. Common ones include inspection and investigation, loan approval, appraisal, and title review. While a contingency is active, you can typically cancel for a covered reason and receive your deposit back, as long as you follow the notice and timing rules in the contract.
Once you remove contingencies in writing, your deposit is at higher risk if you later cannot close. Be sure you understand the schedule for removing contingencies, how to give written notice, and what evidence your lender may need to document a loan issue.
Common scenarios in Santa Clara County
Canceling during inspection
- If you cancel within the inspection or investigation period according to the contract, the deposit is typically returned to you.
- If you removed the inspection contingency or missed the deadline, your deposit may be at risk if you back out.
Appraisal shortfall or loan issues
- If the appraisal comes in low or your lender cannot approve the loan, you can usually cancel under an active appraisal or loan contingency and receive your deposit back.
- You may also negotiate a price adjustment or bring additional cash to close. If you waived these contingencies, you have less protection and could risk the deposit if you default.
Buyer default after removing contingencies
- If you remove contingencies and then fail to close, the seller may be entitled to keep your deposit under a liquidated damages clause if it applies.
- If that clause is not in effect or there is a dispute, the seller could seek other remedies. These situations can become time‑consuming and costly.
Seller default
- If the seller cannot deliver clear title or refuses to close, you can seek a return of your deposit under the contract. You may also have other remedies available through legal channels.
Disputes and deposit release
- Escrow companies generally need mutual written instructions, a court order, or authorization under the contract to release funds. If there is a dispute, the money may be held until the parties reach agreement or there is a legal resolution.
Back‑up offers and deposits
- Back‑up buyers may also place deposits with escrow or the listing broker to hold. If the primary deal closes, the back‑up buyer’s deposit is returned. If the primary cancels and the back‑up becomes primary, that deposit becomes the earnest money for the new contract.
Offer strategies for Saratoga buyers
Every offer is a balance between being competitive and protecting your deposit. Here are three approaches that work in our market:
- Conservative with protections. A smaller deposit, such as 1% or a reasonable fixed amount, plus full inspection and loan contingencies. Good if you need more time or are not in a bidding war.
- Competitive with safeguards. A larger deposit, such as 2% to 3%, plus shorter contingency periods. This can appeal to sellers while keeping key protections in place.
- Aggressive. A larger deposit, such as 3% to 5% or more, with limited or waived contingencies. This signals serious intent but raises forfeiture risk if you cannot close. Only choose this approach after you and your lender complete deep up‑front diligence.
Cash or near‑cash buyers sometimes offer a modest deposit and rely on proof of funds or a shorter closing timeline to compete. That can work if the seller values speed and certainty.
Step‑by‑step earnest money checklist
- Confirm your funds. Make sure the deposit is liquid and ready for a wire or cashier’s check on short notice.
- Discuss strategy. Align the deposit size with your contingency plan and risk tolerance before you write the offer.
- Set the timeline. Verify the contract’s deposit due date, delivery method, and escrow holder details.
- Track your dates. Put contingency deadlines and notice methods on your calendar and send any notices in writing before the cutoff.
- Tighten up front. If considering shorter or waived contingencies, consult your lender and inspector before writing the offer so you know your true risk.
- Keep your lender looped in. Secure a strong pre‑approval and provide it with your offer to reduce loan‑related risk.
- Verify wiring instructions. Call your escrow officer using a known, trusted phone number to confirm any wire details before sending funds.
Wire transfer safety
Wire fraud is a real risk. Protect your deposit with simple steps:
- Call your escrow officer at a verified phone number to confirm wiring instructions before every transfer.
- Never trust wiring changes sent by email without live phone confirmation.
- Double‑check the escrow company name, account number, and routing number on the same call.
Plan your cash for Saratoga prices
Even a small percentage of a Saratoga purchase price can mean a large deposit. Make sure you plan for the deposit along with your down payment, closing costs, and reserves. If your funds are in stocks or multiple accounts, move them early so you can meet the deposit deadline without delays.
Work with a local expert
The rules live in the contract, and the strategy lives in the market. When you align both, you protect your deposit and strengthen your offer. If you want a clear plan that fits your budget and risk comfort, partner with a local pro who navigates Santa Clara County transactions every day. Ready to get started on a smart, competitive offer strategy for Saratoga? Work with Lindsay Hogan.
FAQs
How much earnest money should I offer in Saratoga?
- It depends on price, competition, and your contingency plan. Many buyers use 1% to 3% as a baseline, and in hot situations increase to 3% to 5% or more to stand out.
Is earnest money refundable if I change my mind after making an offer?
- Only if you cancel under an active contingency and follow the contract’s notice and timing rules. Canceling due to buyer’s remorse after removing contingencies usually risks the deposit.
What happens if the appraisal comes in lower than my offer price?
- You can try to renegotiate, bring extra cash, or cancel under an appraisal or loan contingency if you kept it. If you waived those protections, you may need to cover the gap or risk the deposit if you default.
Does my earnest money go toward my down payment and closing costs?
- Yes. At closing, escrow credits your deposit toward your purchase price and closing costs on the final settlement statement.
Who decides if the seller can keep my deposit if I default?
- The purchase agreement governs. If a valid liquidated damages clause applies and you default, the seller may keep the deposit up to the stated amount. If there is a dispute, escrow typically holds funds until mutual release or legal resolution.
