A good-faith deposit from the buyer, submitted with a purchase offer, showing the seller the buyer is serious about completing the transaction.
Full Definition
Earnest money (also called a good-faith deposit) is typically 1–3% of the purchase price, though it varies by market. The funds are held in escrow by the listing agent's brokerage or a title company until closing, at which point they're applied to the buyer's down payment or closing costs. If the buyer backs out of the transaction without a valid contingency (financing, inspection, appraisal), the seller may keep the earnest money as damages. If the deal falls through due to a failed financing contingency, the buyer typically gets their earnest money back. In competitive markets, buyers sometimes offer more earnest money to show commitment.
Related Terms
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