In real estate, Earnest Money is a deposit made by a buyer at the time an agreement of sale is signed to demonstrate good faith and serious intent to purchase the property. The funds are typically placed into an escrow account held by a neutral third party until the transaction is completed or terminated.
Earnest money is usually credited toward the buyer’s down payment or closing costs at closing. If the transaction fails to close, the disposition of the earnest money depends on the terms of the purchase agreement. It may be returned to the buyer if contractual contingencies are met or forfeited to the seller if the buyer defaults without legal justification.
