What is an earnest money deposit?

An earnest money deposit is a payment made by a buyer to demonstrate their commitment and good faith in the transaction when making an offer on a property. This deposit is typically intended to ensure the seller that the buyer is serious about purchasing the property. It signifies that the buyer is willing to put down a financial commitment that can be applied toward the purchase price if the transaction proceeds to closing.

In many cases, this deposit is held in an escrow account until the closing of the sale, at which point it is applied to the total cost of the home. If the transaction does not go through due to the buyer backing out without a valid reason, the seller may be entitled to keep the earnest money as compensation for taking the property off the market. Thus, it serves as a critical component in real estate transactions, reflecting the buyer's intent to proceed and willingness to engage seriously in negotiations.