When a buyer makes an offer to purchase real estate and the offer is accepted, a good faith (or ernest money) deposit is forwarded to escrow.  Escrow is an independent neutral third party. 

Most purchase contracts have contingencies such as the buyer approves the condition of the property, the appraiser validates the purchase price, the buyer qualifies for a loan, etc.  When these contingencies are in place, the buyer has the opportunity to cancel escrow if he can’t meet the contingencies. And in this instance the buyer’s deposit would be refunded.



Once escrow has the deposit, the money cannot be returned to the buyer without the seller’s signature on cancellation instructions advising escrow to return the deposit.  It is illegal for a seller to spitefully withhold his signature on cancellation instructions. In the event a seller does, a lis pendens can be filed.  This clouds title   and a new buyer could not obtain a loan.

In the Los Angeles real estate market the customary deposit is 3% of the selling price.  10% deposits are often requested (although not required) on probate properties.  At closing the deposit is credited toward the purchase price.

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