Is seller entitled to buyer’s deposit?

Is seller entitled to buyer’s deposit?
Date Published: April 10, 2014

Dear Sue,
I received an offer on my home a couple of weeks ago.
I just received a cancellation notice with no explanation whatsoever. The buyer put a $5,000 deposit in escrow. I think that money should be mine. After all, I held my property off the market and missed other possible buyers.
My agent said that I can't keep the deposit because the buyer never removed contingencies.
I do not understand. Where are the legal protections for the sellers?
~ Furious Frank
Dear Frank,
I know how it feels to have an escrow cancel with no explanation. It feels horrible. When I first started, real estate buyers had to give the reason for a cancellation. If they couldn't give a reason it was considered a breach of contract.
Now they are protected by page 5 paragraph 14 B of the California residential purchase agreement.
This paragraph gives the buyer 17 days to do all of his investigations and approve the disclosures provided by the listing agent and the seller. The buyers contingencies must be actively removed in writing. If the buyer goes beyond the 17 days and fails to close the escrow the seller cannot retain the deposit. It's key during the inspection period that the time frames are strictly met.
Did you and the buyer initial the liquidated damages section of the purchase agreement? If you had both initialed the liquidated damages clause and the buyer removed his contingencies (in writing) you would possibly be entitled to the deposit as long as the deposit does not exceed 3 percent of the purchase price. This applies only to residential property 1 to 4 units.
Signing the liquidated damages provision caps the amount of money that the buyer may owe to the seller in the event of a breach. As for the seller the advantage is similar in that it provides the seller with certainty as to what the buyers liability will be in case of a breach.
Furthermore the seller does not have to prove damages in court. This obviously saves the seller a lot of money. The bottom line with the liquidated damages provision in place is that there are fewer surprises and more certainty for both the buyer and the seller in the event of a buyer breach.
Some sellers believe that if they write in a counter offer stating that the buyers deposit is nonrefundable they are somehow protected.
According to the California Association of Realtors the courts have actually eliminated this kind of counter offer and have required the sellers who wanted a nonrefundable deposit to prove actual damages which is difficult at best.
The best strategy for keeping the buyers deposit in the event of default is to have the buyer remove all contingencies in writing.
It's a matter of good Home $$$s and Sense!
Sue Thompson is the owner of HomeTown Realtors in Auburn. She can be reached at, or at