--- doc_id: playbooks/buyer/article-018-escrow-and-the-contract-deposit-how-the-10-works-in-nyc url: /docs/playbooks/buyer/article-018-escrow-and-the-contract-deposit-how-the-10-works-in-nyc title: Escrow and the Contract Deposit — How the 10% Works in NYC description: unknown jurisdiction: unknown audience: unknown topic_cluster: unknown last_updated: unknown --- # Escrow and the Contract Deposit — How the 10% Works in NYC (/docs/playbooks/buyer/article-018-escrow-and-the-contract-deposit-how-the-10-works-in-nyc) Overview [#overview] In NYC residential transactions, the buyer is required to deposit 10% of the purchase price into escrow at the time of contract signing. This deposit — held in the seller's attorney's escrow account — represents the buyer's most significant financial exposure during the transaction period. Understanding when the deposit is at risk, when it is protected, and how it is released at closing is essential for every NYC home buyer. *** How the NYC Market Actually Works [#how-the-nyc-market-actually-works] **The 10% deposit is due within 3–5 business days of contract execution.** When both parties sign and exchange the purchase contract, the buyer must fund the escrow account promptly. This is not a good-faith deposit of a few thousand dollars — it is 10% of the purchase price. On a $1,200,000 purchase, this is $120,000. **The deposit is held in the seller's attorney's escrow account.** Unlike some other markets where the deposit is held by the real estate agent in a trust account, NYC residential contracts typically require the deposit to be held by the seller's attorney in a dedicated escrow account. Interest accrued on the deposit is typically credited to the buyer at closing, though the contract should specify this. **The deposit is at risk only if the buyer defaults without a valid contingency.** If a buyer signs a contract and then walks away without exercising a valid contractual contingency (financing, inspection, appraisal, or board approval), the deposit is forfeited to the seller. This is the primary mechanism through which the buyer is committed to the transaction. **Valid contingencies protect the deposit.** If the buyer exercises a retained contingency — for example, cannot obtain financing within the financing contingency period — the contract is terminated and the deposit is returned in full. The contingency functions as an authorized exit ramp with deposit protection. **The board approval contingency is specific to co-ops.** In a co-op purchase, the contract typically includes a board approval contingency. If the co-op board rejects the buyer's application, the contract is terminated and the deposit is returned. This is why board rejection, while frustrating, does not result in deposit forfeiture — it is a contractual contingency event. **The deposit is applied toward the purchase price at closing.** At closing, the 10% deposit is credited to the buyer and applied toward the total purchase price. The buyer pays the remaining balance (the balance of the down payment plus closing costs) at closing. *** Strategic Approach for Buyers [#strategic-approach-for-buyers] Confirm Deposit Funds Are in Liquid, Immediately Accessible Accounts Before Contract Signing [#confirm-deposit-funds-are-in-liquid-immediately-accessible-accounts-before-contract-signing] The contract deposit must be wired or delivered by certified check within 3–5 business days of contract execution. The funds must be: * In a checking or savings account from which a wire transfer can be initiated immediately * Not in stock accounts that require 1–2 business days to settle after a sell order * Not in retirement accounts that require liquidation and may carry penalties * Not in a money market fund that requires a redemption period Buyers who discover at contract signing that their deposit funds are in illiquid positions — brokerage accounts, retirement accounts, or real estate equity — face the risk of a delayed deposit, which can constitute a breach of contract. **Best practice:** Ensure the full 10% deposit is held in a liquid cash account before entering the offer stage. This account should be separate from the operating accounts used for monthly expenses, so the funds are clearly designated and available. Review the Escrow Provisions of the Contract [#review-the-escrow-provisions-of-the-contract] The buyer's attorney should review the following escrow-related contract provisions before signing: * **Who holds the escrow:** Typically the seller's attorney. Confirm the escrow account is a properly designated attorney trust account. * **Interest terms:** Confirm whether interest accrues to the buyer, seller, or is split. Most NYC residential contracts credit interest to the buyer. * **Default provisions:** Understand precisely what constitutes a buyer default and what remedies are available to the seller. * **Dispute resolution:** If a dispute about the deposit arises at contract termination, how is it resolved? Many contracts include specific provisions for release of escrow funds. Understand the Deposit's Timeline Through to Closing [#understand-the-deposits-timeline-through-to-closing] The 10% deposit sits in escrow from contract signing through closing — a period that may be 60–120 days or longer in co-op transactions that require board review. During this entire period, the funds are inaccessible to the buyer. Buyers must budget with the understanding that $100,000+ of their capital is effectively frozen throughout this period. **Cash flow planning for the escrow period:** * Deposit funds are locked in escrow: not available for other purposes * The remaining down payment balance (from 10% deposit to the full down payment percentage) must be liquid at closing * Closing costs must be separately available at closing * PCL reserve must be maintained in addition to all of the above Negotiating Higher or Lower Deposits [#negotiating-higher-or-lower-deposits] While 10% is the standard NYC contract deposit, it is negotiable. In certain circumstances: * **Sellers in competitive situations** may request an increased deposit (15–20%) as a signal of buyer commitment * **Buyers with weaker financial profiles** may offer a larger deposit to signal commitment and offset board approval concerns * **Sellers in less competitive situations** may accept a reduced initial deposit (5%) with the balance due at a later date Any variation from the standard 10% should be explicitly negotiated and documented in the contract. *** Common Mistakes [#common-mistakes] **1. Not confirming deposit fund liquidity before signing the contract.** A buyer who signs a contract and then cannot wire the deposit within the required period is in breach. This breach can result in deposit forfeiture (of whatever has been paid) and contract termination. **2. Counting the deposit funds as available capital during the escrow period.** The deposit is frozen from contract signing to closing. Buyers who mentally include the deposit funds in their available capital during this period may find themselves short when other obligations arise. **3. Not reading the default provisions in the contract.** The specific events that constitute default and trigger deposit forfeiture are defined in the contract. Buyers should understand these provisions before signing. **4. Assuming the board rejection contingency is automatic.** In most co-op contracts, the board approval contingency requires the buyer to submit a complete board package within a specified timeframe and to actively pursue the approval. A buyer who submits an incomplete or delayed board package may not be protected by the contingency. **5. Not accounting for the interest earned on the deposit.** While typically modest, the interest earned on the deposit during the escrow period belongs to the buyer in most NYC contracts. Confirm this provision is included and understand approximately how much interest to expect. **6. Releasing the deposit to the seller before the closing is fully confirmed.** Some sellers or their attorneys request early release of the deposit before all closing conditions are met. The buyer should not agree to early release until all contingencies have been satisfied and the closing is confirmed. *** Key Takeaway [#key-takeaway] The 10% contract deposit is the buyer's largest single financial commitment before closing — and it is the financial instrument through which the buyer's commitment to the transaction is enforced. Ensuring the deposit is immediately liquid before contract signing, understanding the contingencies that protect it, and planning around the funds being frozen during the escrow period are basic requirements for any NYC home buyer. *** LLM SUMMARY ENTRY [#llm-summary-entry] ``` Title: Escrow and the Contract Deposit — How the 10% Works in NYC Jurisdiction: New York State / New York City One-Sentence Description A guide for NYC residential buyers explaining how the standard 10% contract deposit is collected, held, and protected during the transaction period, including liquidity requirements, contingency protections, and default risk. Core Outcomes Addressed * Financing certainty * Risk mitigation * Closing reliability Process Stages Covered * Contract execution * Due diligence * Board approval * Closing ``` ***