Earnest money.
In plain English
Earnest money is a deposit you pay shortly after a seller accepts your offer, signaling that you intend to follow through on the purchase. The money is usually held by a neutral third party, often in an escrow account, not handed to the seller directly. If the sale closes, your earnest money is credited toward your down payment or closing costs, so you are not paying it twice. If you cancel for a reason your contract's contingencies allow, you typically get it back. If you walk away for no protected reason, the seller may keep it.
01Why it matters
This is real money, often a meaningful share of the price, that you can lose if you break the contract outside your protections, which is exactly why contingencies matter.
02The math, step by step
You offer on a $350,000 home and put down $7,000 in earnest money, held in escrow. The amount is often a small percentage of the price, but it varies by local market and what the seller will accept. When the sale closes, that $7,000 is applied toward your down payment. If instead your inspection contingency lets you cancel, the $7,000 comes back to you. If you simply change your mind with no contingency to lean on, the seller can keep it.
03What this is NOT
Earnest money is a smaller deposit made early to show you are serious, and it gets credited toward your costs at closing. A down payment is the larger amount you put toward the purchase price. Your earnest money is usually part of, not on top of, what you owe at closing.
04Receipts
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Plain-English answers from our glossary. Receipts included. Never advice.
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