Earnest Money
Earnest money is a deposit a buyer submits with a purchase offer to show the offer is serious. It typically runs 1-3% of the purchase price (more in competitive markets) and is held by a neutral third party — a title company or escrow agent — never handed directly to the seller.
The money is not an extra cost: at closing it is credited toward your down payment and closing costs.
What happens if the deal collapses depends on the contract's contingencies. If you cancel for a reason the contract protects — the inspection reveals major problems, the appraisal comes in low, or your financing falls through despite good faith — the deposit is returned. If you simply walk away for a reason not covered, the seller usually keeps it as compensation for taking the home off the market.
Waiving contingencies makes an offer stronger but turns the earnest money into real money at risk — worth understanding before signing, not after.
Related terms: Escrow, Down Payment, Appraisal.
