Contract Glossary

Earnest Money

Definition

A deposit made by a buyer to show they're serious about a purchase, most often in real estate. If the deal goes through, the earnest money gets applied to the purchase price. If the buyer backs out without a valid reason, the seller usually keeps it.

In Practice

You'll typically put down 1-3% of the purchase price as earnest money when you make an offer on a house. The money goes into an escrow account until closing. If you walk away for a reason not covered by your contract's contingencies, like simply changing your mind, you'll lose that deposit.