Earnest money generally refers to a nominal amount given by one party to another as a sign that he is willing to proceed with the transaction for buying a property.
Earnest money is a deposit made to a seller to show that the buyer intends to purchase a home. In return, the buyer will have extra time to obtain financing, complete the title search, conduct the property appraisal, and have inspections performed before closing.
Earnest money can be used in many ways, including as a down payment, an escrow deposit, or as a good faith money.
According to English Law Dictionary, “earnest money is just a way of asserting that is used by the parties to the contract to show that they are in earnest and so they have made their mind”.
Earnest money is usually presented upon signing the sales contract or purchase agreement, but it can be attached to the offer as well. As soon as the funds are deposited, they are typically held in an escrow account until closing, when they will be applied to the buyer’s down payment and closing costs.
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