What Is a Contract Deposit and When Can a Buyer Walk Away With It?
When a NYC purchase contract is signed, the buyer wires a deposit — customarily 10% of the purchase price — into an escrow account, almost always held by the seller's attorney. On a $2,000,000 apartment, that's $200,000 sitting in escrow for two or three months. Both sides should understand exactly what governs it.
The basics
Amount: 10% is the NYC custom. Higher deposits (15%–20%) sometimes appear as a competitive term in bidding wars; lower deposits occasionally appear in new development staged structures.
Held by: the seller's attorney, in an escrow (usually IOLA) account. The escrow agent is a fiduciary and cannot release funds unilaterally when there's a dispute.
Interest: typically minimal; the contract specifies who receives it.
Purpose: it's the seller's security. If the buyer defaults, the deposit is generally the seller's remedy — commonly as liquidated damages, meaning the seller keeps it and the matter ends there.
When the buyer gets it back
1. Mortgage contingency not satisfied. If the buyer applied promptly and in good faith and the lender denied the loan within the contingency period, the buyer cancels and the deposit is returned. Note what this doesn't cover: cold feet, a rate the buyer no longer likes, or a denial caused by the buyer's own inaction (quitting a job, opening new debt, failing to submit documents).
2. Funding failure — if a funding contingency exists. A standard mortgage contingency expires at commitment. Without a separate funding contingency, a lender that commits and then fails to fund leaves the buyer obligated. This is why buyers' attorneys push for one.
3. Co-op board rejection. Standard co-op contracts make board approval a condition. If the board declines through no bad faith of the buyer, the deposit is returned. If the buyer sabotaged the process — refusing to submit a package, blowing up the interview — that's a different analysis.
4. Seller default. If the seller can't deliver good title or clear stock, fails to perform, or walks, the buyer typically gets the deposit back and may have further remedies, including specific performance.
5. Other contract conditions written into the contract or a rider — a title objection the seller can't cure, an unremedied violation, a specified building condition.
When the seller keeps it
Broadly: when the buyer defaults without a contractual excuse. The classic scenarios:
Buyer waived the mortgage contingency and can't fund
Buyer simply changes their mind
Buyer misses closing after a valid time-of-the-essence notice
Buyer fails to perform obligations (won't submit the board package, won't cooperate with the lender)
Most NYC contracts cap the seller's damages at the deposit — the buyer loses 10% and walks away, and the seller cannot generally pursue additional damages. Read your specific contract; terms vary.
What happens in a dispute
This is the part people underestimate. If both parties claim the deposit, the escrow agent cannot simply hand it over. The attorney holds the funds until:
Both sides sign a written release agreeing on distribution, or
A court order directs distribution (the escrow agent may file an interpleader action, depositing the funds with the court and stepping out)
Litigation over a deposit can take many months and cost real money, which is why most disputes settle — often with a split. The practical lesson for both sides: a negotiated release today usually beats a lawsuit for the full amount next year.
Practical guidance
For sellers:
Insist on a substantial deposit; it's your security and a signal of commitment
Have your attorney hold escrow (standard) and confirm the release mechanics in the contract
Don't spend or promise the deposit before closing — it isn't yours until it is
If a buyer wants out, take advice before responding; statements you make can affect your position
For buyers:
Understand precisely which contingencies you have — and which you waived. Get it in writing from your attorney.
Apply for financing immediately and document everything; "good faith and diligence" is the standard
Never waive the mortgage contingency without a genuine cash fallback and a written explanation of the risk
Ask about a funding contingency; sellers grant it more often than buyers ask
Confirm your co-op contract makes board approval a condition
The one-line summary
The deposit is real money with real rules. Both sides should be able to answer, before signing: under exactly what circumstances does this money change hands? If your attorney can't answer that in two sentences, don't sign yet.
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This article is for general informational purposes only and does not constitute legal advice. Deposit outcomes are governed entirely by your specific contract and the facts. Consult a licensed New York real estate attorney. As of August 2026.
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