Definition
A deposit, commonly 1-3% of the purchase price, that a homebuyer submits with an offer to show they are serious. It sits in an escrow account and is credited toward the down payment and closing costs at closing. If the buyer backs out for a reason the contract does not cover, the seller can keep it.
Why it matters
Earnest money is real cash at risk weeks before closing, and the contract contingencies (inspection, financing, appraisal) are what make it refundable. Waiving them to win a bidding war puts the deposit on the line.
Example
A buyer offers $400,000 with $8,000 of earnest money and an inspection contingency. The inspection finds a cracked foundation, so they exit under the contingency and the $8,000 comes back. Had they simply changed their minds, the seller could have kept it.
Put it into practice
Related terms
This definition is educational, not financial, legal, or tax advice. U.S. rules and limits change; verify time-sensitive details with official sources. See our disclaimer.