Earnest Money Deposit

Definition

A sum or down payment a buyer makes to a seller to show good faith in a transaction.

Tips

Earnest money allows the buyer more time to seek financing and is usually held jointly by the seller and buyer in a trust or escrow account. Earnest money deposits are only common in smaller transactions. Corporations and private equity groups do not provide earnest money deposits because they make a substantial investment performing due diligence. This investment often takes the form of hiring professionals, such as attorneys or accountants, and they consider this investment a demonstration of their earnest intent.