What is earnest money?

Earnest money is defined as a deposit made by a buyer to demonstrate their serious intent to purchase a property. This deposit serves as a sign of good faith and commitment to the transaction, reassuring the seller that the buyer is genuine in their offer. Typically, earnest money is held in an escrow account until the closing of the transaction, at which point it is usually applied toward the buyer's down payment or closing costs.

This practice is essential in real estate transactions, as it helps to solidify the buyer's position and can be a determining factor in competitive markets where multiple offers are common. The amount of earnest money can vary based on local customs and the agreement between the parties involved, but its primary purpose remains the same: to signify the buyer's serious intent and to create a level of trust in the negotiation process.