Buying a home in Los Altos means playing in one of Silicon Valley’s most competitive arenas. That often turns your earnest money deposit into a five- or six-figure line item. If you are not clear on how it works, you could put significant cash at risk.
You want an offer that stands out without exposing more than you intend. In this guide, you will learn what earnest money is, how it works in California, the contingencies that protect you, the most common dispute outcomes, and practical steps to avoid wire fraud. You will also see real-world examples so you can plan with confidence. Let’s dive in.
What earnest money is and how it works
Earnest money is your good-faith deposit that shows a seller you are serious. In California, it is typically credited back to you at closing to reduce what you owe for your down payment or closing costs.
Funds are usually placed into escrow with a neutral escrow or title company based on the terms of your purchase contract. The California Association of Realtors (CAR) forms commonly call for delivery within a short window after your offer is accepted, often 2 to 3 business days. Always check your specific agreement to confirm exact timing.
Escrow can accept several forms of payment, including a cashier’s check or a wire transfer. In Silicon Valley, wire transfers are common due to the size of deposits. If the sale closes, the money applies to your final funds due. If the sale cancels and you are contractually entitled to a refund, escrow will return the deposit according to the contract and escrow instructions.
Los Altos market norms that shape deposits
Los Altos is a high-price market. Even at typical percentages, the dollar amounts are large. Nationwide, earnest money often falls in the 1 to 3 percent range. In competitive Silicon Valley offers, you may see higher percentages and larger absolute deposits. In practice, deposits can run from about 3 to 10 percent or more on multi-million-dollar properties when buyers shorten or waive contingencies to compete.
Sellers in Los Altos often view a larger deposit as a sign of commitment. That said, deposit size is only one piece. Strong preapproval, proof of funds, a clean timeline, and clear terms matter too. Market norms shift with interest rates, inventory, and season. Discuss current expectations with your agent before you write.
Illustrative examples for context only:
- On a $2,000,000 home, 3 percent is $60,000; 5 percent is $100,000.
- On a $3,000,000 home, 3 percent is $90,000; 5 percent is $150,000.
Contingencies that protect your deposit
Common buyer protections
Contingencies give you time to verify the property and financing. If you cancel within the agreed period and follow the contract’s notice rules, your earnest money is generally preserved.
- Loan contingency. Protects you if financing cannot be obtained within the timeframe.
- Appraisal contingency. Helps if the appraisal comes in low and the seller will not adjust and you will not cover the difference.
- Inspection contingency. Lets you inspect, request repairs, or cancel within the period if you are not satisfied.
- Sale-of-home contingency. Gives you time to sell your current home.
- Title, HOA, and disclosure review. Allows you to review reports and cancel if unacceptable issues appear.
Deadlines and removal
Contingency periods are negotiated. As a general reference, you may see 7 to 17 days for inspections and 21 to 30 days for loan in many California transactions. In hot conditions, buyers often shorten them. You must remove contingencies in writing using the contract forms. Once you remove a contingency, you lose that protection, and your deposit is more exposed if you later fail to close.
How to preserve your rights
- Track every deadline and send notices in writing before time expires.
- Keep lender updates in writing and share status with your agent and escrow.
- Avoid verbal agreements. Put all changes in writing and signed by both parties.
- If you intend to cancel, follow the contract’s cancellation procedures and instruct escrow promptly.
Risk and dispute outcomes in California
The purchase agreement controls what happens to the deposit if the deal falls apart. Contracts often include language about remedies and how escrow should handle funds if there is a dispute.
If a buyer defaults after removals
When contingencies have been removed and a buyer does not close, the seller may be entitled to the deposit as a remedy. Many agreements describe this as liquidated damages, subject to the specific contract language. Sellers can also consider other remedies, such as damages or specific performance, though those paths can be time-consuming.
If a seller breaches the contract
If a seller fails to perform, the buyer can usually recover the earnest money and may consider other remedies. Outcomes hinge on the purchase agreement and the facts, so review terms with your agent and, when needed, legal counsel.
How escrow handles disputes
Escrow is neutral. It will hold funds until it receives mutual written instructions or a final decision from mediation, arbitration, or the court. If either party disputes who should receive the deposit, escrow typically places the funds on hold until there is a clear resolution.
Avoid wire fraud when funding earnest money
Real estate wire fraud is a real risk nationwide. Criminals try to intercept large transfers by spoofing emails and changing wiring instructions. Use these best practices before you wire money to escrow.
- Call a known phone number for your escrow or title officer to verify instructions. Do not rely on numbers listed only in an email.
- Confirm routing and account numbers verbally with the escrow company before sending funds.
- Treat any request to change wiring instructions as a red flag. Re-verify by phone with your escrow officer.
- Consider a cashier’s check if timing and amount make it practical and your escrow officer approves.
- Ask escrow to send a written receipt when funds arrive and clear.
Real-world examples (illustrative)
- Protected cancellation. You deposit earnest money, complete inspections within the inspection period, and discover significant issues. You cancel in writing within the deadline. Escrow returns your deposit according to the contract.
- Waived loan contingency, financing falls through. To compete, you remove your loan contingency early. Later, financing fails. Without the loan contingency, your deposit may be at risk under the contract’s remedies.
- Appraisal shortfall after waiver. You waive the appraisal contingency and agree to cover a specific gap. The appraisal comes in low, and you decide not to fund the difference. Your earnest money is likely at risk based on the contract.
Your Los Altos buyer checklist
- Secure strong preapproval. Get a robust lender preapproval and gather proof of funds for your deposit and down payment.
- Set a deposit strategy. Decide how much to deposit and whether to shorten contingency periods to compete. Balance strength with risk.
- Map key dates. Calendar contingency deadlines and the earnest money due date. Use the contract forms for removals or cancellations.
- Verify escrow details. Confirm the escrow company’s name, address, and verified phone number before wiring funds.
- Confirm delivery method. Choose wire or cashier’s check and follow escrow’s instructions. Request a written receipt once funds are posted.
- Keep funds liquid. Do not tie up cash you need for your deposit or closing.
- Document everything. Keep written records of notices, approvals, and any changes to the contract.
Work with a local advisor
In a market where deposits can reach six figures, planning your earnest money strategy is as important as choosing the home. You want a clear structure for your contingencies, a defensible timeline, and safeguards for your funds. A trusted local advisor can help you balance strength and protection so your offer competes without unnecessary exposure.
If you are preparing to buy in Los Altos or across Silicon Valley, The Grail Group brings 30 years of negotiation experience, white-glove service, and a deep network of escrow, lending, and legal partners to your side. Get an instant property valuation and private consultation. Text 650 772 1519.
FAQs
How much earnest money is typical in Los Altos?
- In many U.S. markets, 1 to 3 percent is common, but in competitive Silicon Valley offers, deposits are often higher in percentage or in absolute dollars due to high home prices and shorter contingencies.
When is earnest money due in a California home purchase?
- Standard purchase forms often call for delivery within about 2 to 3 business days after acceptance, but your contract controls the exact deadline.
Can I get my deposit back if financing falls through?
- If you have an active loan contingency and cancel within the timeframe using the contract’s notice procedures, you generally preserve your earnest money; once you remove that contingency, your deposit is more at risk.
Where is the earnest money held in Santa Clara County?
- Deposits are typically held in escrow by a neutral escrow or title company, or in a broker trust account if agreed in the contract, and applied to your closing funds if the transaction completes.
What if the appraisal comes in low and I waived the appraisal contingency?
- If you waive the appraisal contingency and cannot or choose not to cover the shortfall after removal, your earnest money may be at risk under the contract’s remedy provisions.
