In real estate, what is meant by "earnest money"?

In real estate, "earnest money" refers to a deposit that a buyer provides to demonstrate their serious intent to purchase a property. This deposit is typically submitted along with the purchase offer and serves as a good faith gesture to reinforce the buyer's commitment to following through with the transaction. The earnest money is often held in an escrow account, and it is usually applied toward the buyer's down payment or closing costs if the sale proceeds.

This practice is important because it helps protect the seller from potential losses if the buyer decides to back out of the agreement without a valid reason. A well-defined earnest money deposit indicates to both parties that the buyer is genuinely interested in the property and intends to complete the transaction, which can facilitate smoother negotiations and provide a measure of financial assurance to the seller.