Generally, earnest money is a sum of money given as a sign of one’s good faith. In real estate
transactions, earnest money is the cash deposit paid by the prospective Buyer to the Seller, as
evidence of good faith to complete the purchase transaction. This deposit will be credited to the
sales price upon closing but will be forfeited if the Buyer defaults. It ensures that the Buyer is serious
about obtaining the necessary financing and fulfilling the other conditions necessary to purchase the
property. Without earnest money, some buyers may not use their best efforts to obtain financing
and may still be looking for a better deal on other houses. Often, if the Buyer does not proceed with
the transaction, the Seller can keep the earnest money as damages.
