Earnest money is a payment made to a seller indicating a buyer’s willingness to enter into an arrangement. Typically, buyers provide earnest money to acknowledge that they are serious about a potential purchase, or that their intent to transact is “in good faith.” For the seller, earnest gives assurance that the buyer won’t backout of negotiations without valid cause. Earnest money does not obligate a buyer to transact, however, as issues with the property may be found later while being appraised or inspected.
Earnest money deposits vary in size, and may not always be necessary. In most cases where earnest money is deposited, the money is included in the down payment, given that the buyer follows through with the purchase and sale agreement.
