Let’s go into more detail about your earnest money deposit with the title company. By law in California, when you write an offer to buy a home, you need to offer some amount of money as an initial deposit. And that can be anywhere as little as a thousand dollars – occasionally we’ve done five hundred dollars, but generally minimum a thousand, and more commonly about one percent of the purchase price. Occasionally, if it’s a very competitive situation, we may have suggested that you write a larger deposit, usually no more than three percent of the purchase price.

Once you get your offer accepted by the seller, your deposit money needs to go to the title company, and that can be in the form of a personal check, cashier’s check, or wire. And they are going to deposit, they’re going to cash your check if you did it that way, and hold it for the period that we’re in escrow. If you cancel the purchase, assuming you’re not in default, they’re going to refund you the money.

And that’s really something I want to cover in detail because, especially if you’ve made a larger deposit, two or three percent of the purchase price, a lot of buyers ask us, “Gee, what happens if I cancel? Am I going to lose my deposit? Can the seller keep my money?” and so forth. Just to give you a quick, simple answer, it’s basically almost never.

We’ve been doing business for about 16 years, helping people buy and sell around 600 homes, and honestly – I’m thinking now – I think there’s maybe one occasion where someone really lost their deposit. And they knew exactly what they were doing; they just changed their mind at the last moment, after they had done inspections after they had the property appraised after everything was ready to go – just literally a day or two away from closing escrow, and they just changed their mind and canceled. In that case, they were in default, and they had the seller retain their money.

But there’s plenty of safety nets that you have to make sure that that doesn’t happen. And those would include what we call contingencies, and the contingencies are more or less safety nets or exit doors, if you will, out of the transaction that you have the right to keep in place for at least 17 or 21 days after you’ve had your offer accepted.

Those include physical inspection of the property; if you discover something that you weren’t aware of or that is more troubling than you thought and we can’t find a resolution for it, either through repairs or some monetary compensation, you can cancel the purchase on that basis. Yo the can cancel on the basis of inspections. If we discover something or a number of things that turn up, whether it’s in the physical inspections or the review of disclosures in the reports we receive, public information we become aware of, you can cancel on that basis as well.

And the other main contingency that we have is appraisal contingency. If we offered, for example, $300,000 and the property only appraises for $285,000, if we can’t renegotiate a price that you and the seller find agreeable, you can cancel on that basis.

Generally speaking, we’re going to get the property inspected and review the disclosures and reports in anywhere from 7 to 12 days after the agreement, and generally, that’s plenty of time to get it done. As far as appraisal, that usually takes a little bit longer. Sometimes we get it done within 7 to 12 days; frequently it’s more between 12 and 17 days.

And last but not least, your loan approval process. If all that goes okay – the physical inspections are fine, the disclosure review is fine, the appraisal is fine – but you run into some problem getting your loan approved, that’s the last contingency that we typically remove, and we wouldn’t remove it until we know that your loan is in fact fine.

So really, over the course of the generally first 17 to 21 days after agreement, we’re just sort of checking off things as we go. And we’ll be in touch every step of the way, making sure that your questions are answered, any concerns are addressed, and if we need to cancel, we will, and if we need to attempt to renegotiate, we’ll make our best effort to do that. Generally speaking, we don’t run into a lot of unforeseen events, no huge surprises and red flags, so this is all just sort of worst-case scenario that I’m discussing, but I just wanted to address it in case that’s a concern of yours.

Again, assuming that all goes well, we come to the close of escrow. The lender and the title company are going to tell you how much money you need to complete the purchase, which is going to be the remainder, if any, of your down payment money, perhaps some closing costs as well, and you’ll have your initial deposit be credited towards that total amount.

So, this really, I think, is probably more than you wanted to know about earnest money deposits. I hope it was helpful and addressed any concerns you have. If there are more, please call, text, or email us. Always happy to help.