Earnest money is a deposit paid—often into an escrow account—to show a good-faith intention to complete a transaction—often a transaction for the purchase of real property (real estate).

If the prospective buyer defaults and fails to complete the transaction for the purchase of the real property (fails to close) the earnest money is usually forfeited and delivered to the would-be seller under the terms of the contract or agreement for the sale of the property.

Earnest money is generally not required for a valid contract for the purchase and sale of real property, but is often included to compensate the prospective seller for time and potential missed sales opportunities while the sale was “under contract” with the prospective buyer.

Earnest money may also be referred to as earnest; bargain money; caution money; hand money; or down payment.

In Idaho, earnest money is a common practice in real estate transactions, serving as a deposit to demonstrate the buyer's good-faith intention to purchase a property. While not legally required for a contract to be valid, it is frequently used to show commitment and to provide the seller with some security. If a buyer defaults on the agreement to purchase the property, the earnest money is typically forfeited to the seller, as per the terms outlined in the purchase agreement. This forfeiture compensates the seller for the time the property was off the market and for any potential opportunities lost during that period. The specific rules and handling of earnest money, such as the amount, conditions for return or forfeiture, and escrow account details, are typically detailed in the purchase agreement. It is important for both buyers and sellers to clearly understand these terms before entering into a contract. In Idaho, as in other states, real estate transactions and contracts are subject to state statutes and common law principles governing contracts and property.