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 Illinois, earnest money is a deposit made by a prospective buyer to demonstrate their commitment to completing a real estate transaction. It is typically held in an escrow account during the period between the acceptance of the offer and the closing of the sale. Illinois law does not mandate the payment of earnest money for a real estate contract to be valid; however, it is a common practice to provide assurance to the seller. If the buyer defaults on the agreement and fails to close the sale without a legally valid reason, the earnest money is usually forfeited to the seller, as per the terms outlined in the purchase agreement. The purpose of earnest money is to compensate the seller for the time the property was off the market and for any potential opportunities they may have missed while the property was under contract. The terms regarding earnest money, including the amount, conditions for return or forfeiture, and the handling of the funds, should be clearly stated in the purchase agreement to avoid disputes. It is advisable for parties involved in such transactions to consult with an attorney to ensure their rights and interests are adequately protected.