Earnest Money Law and Legal Definition

Earnest money is a deposit of money up front to indicate a sincere intention to complete a transaction. A deposit of earnest money may be required in certain offers, such as an offer to purchase real estate.

If the offer is accepted, the seller may keep the earnest money and apply it toward the purchase price, or the money may be kept in escrow until closing, and then applied to the buyer's closing costs. If the offer is rejected, the earnest money is usually returned, however, it may be forfeited if the buyer retracts the offer.