Earnest Money in United States

Practical Information

Note: Some of this information was last updated in 1982

Earnest Money in Real Estate

The payment of part of the purchase price to bind a sale. The cash deposit made by the buyer is an element of all contracts of sale, and is the indication that the buyer intends to go through with the purchase if the seller furnishes good title to the property. The deposit is also referred to as the binder, although this term is more frequently applied to a deposit made under informal agreements than to deposits made in connection with formal contracts drawn up by the lawyer. If the buyer fails to consummate the deal, the earnest money is retained by the seller; if the buyer does perform his or her part of the contract, the earnest money is applied as part payment of the purchase price. If the seller cannot convey good title to the property, the deposit is returned to the buyer. The amount of earnest money depends upon the agreement between the parties. It is ordinarily sufficient to cover the broker’s commission, expenses of the title search, and compensation to the seller for the loss he or she might sustain should the buyer fail to go through with the deal.

(Revised by Ann De Vries)

What is Earnest Money?

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