What is a security deposit in a real estate transaction?

A security deposit in a real estate transaction in California is a sum of money that is given to the seller by the buyer to secure an agreement or contract between the two parties. This money is usually held in an escrow account until the closing between the buyer and seller is complete. The security deposit is intended to incentivize the seller to perform their obligations during the transaction and ensure that the buyer will be able to purchase the property if all of the conditions in the agreement are met. The amount of the security deposit is typically equal to a percentage of the total purchase price of the real estate. The amount of the deposit can be negotiated between the buyer and seller. However, the California Department of Real Estate has put a limit of 10% of the purchase price as the maximum for residential real estate. The funds in the security deposit are returned to the buyer at the end of the transaction if all the obligations are fulfilled. The security deposit is an important component of any real estate transaction in California and serves to protect the interests of both the buyer and seller. It is important to carefully review the terms of the agreement and make sure that all parties understand these terms before the security deposit is put into the escrow account.

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