Mike, if memory serves me correctly working for in the Consumer Real Estate Department, minimum loan amount is $50K for purchase money financing. So, basically, if there is some requirement for earnest money, it is probably to show you have the means and the intention to complete the transaction non-contingent. In my opinion the seller wants to show the bank you can close. 3% is the norm when financing is involved in closing the deal.
If the property is owner occupied, possession may be at close of escrow or later depending on the contract.
Regarding damage, the California Purchase Contract states that the property will be delivered in the same or better condition than when the offer was made. If not, the seller would probably be required to make corrective repairs unless the damage is to an area of the property maintained by the HOA.
Arturo Shivers, REALTOR
DRE Lic. #01779941