What is "earnest money"?

Earnest money is a deposit made by the buyer to demonstrate their commitment and good faith in purchasing a property. This deposit reflects the buyer's intention to proceed with the transaction and can help reassure the seller that the buyer is serious about the offer. Typically, earnest money is held in an escrow account until the sale is concluded, and it helps to ensure that both parties fulfill their contractual obligations. If the transaction goes through, the earnest money is often applied toward the down payment or closing costs. However, if the buyer fails to follow through without a valid reason, the seller may have the right to keep the earnest money as compensation for taking the property off the market. This practice is a common element of real estate transactions, particularly to facilitate mutual trust between the buyer and seller.