What is an earnest money deposit?

An earnest money deposit is a payment made by a buyer to demonstrate their serious intent to purchase a property. This deposit shows the seller that the buyer is committed to the transaction and is a good faith measure that helps to formalize the offer. Typically, the earnest money is held in an escrow account until the sale is finalized, at which point it is often applied to the buyer's down payment or closing costs.

This payment serves as a security for the seller, as it can be forfeited if the buyer backs out of the agreement without a valid reason as per the terms of the contract. The primary purpose is to reassure the seller that the buyer is genuinely interested in completing the sale, making it a crucial aspect of real estate transactions.