Can the seller keep my deposit if I back out of buying a home?

Only under a valid liquidated damages clause, and only if no contingency allowed cancellation. For a residential property the buyer intended to occupy, California caps presumptively valid liquidated damages at three percent of the purchase price (Civil Code section 1675), and the clause must be separately signed or initialed by both parties.

Not automatically. A California buyer who cancels while a financing, appraisal, or inspection contingency is still in place is generally entitled to the deposit back — contingencies exist precisely to allow exit without penalty. If the buyer defaults after removing contingencies, the seller's right to the deposit depends on the contract's liquidated damages clause. For residential property of one to four units that the buyer intended to occupy, Civil Code sections 1675 through 1677 govern: the provision must be separately signed or initialed and formatted as the statute requires, and an amount up to three percent of the purchase price is presumed valid while anything above three percent is invalid unless the seller proves it was reasonable. Standard California Association of Realtors forms track these rules. Disputes are common when escrow holds the funds, because escrow holders release deposits only on mutual instructions or a court order — small claims court and the contract's mediation clause are the usual paths to resolution.

Authority: Cal. Civ. Code § 1675