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 Indiana, earnest money is a common practice in real estate transactions, serving as a deposit to demonstrate the buyer's good faith in proceeding with the purchase. While not legally required for a contract to be valid, earnest money is typically stipulated in the purchase agreement. If the buyer defaults on the agreement without a lawful reason, the earnest money is often forfeited to the seller, as compensation for the time the property was off the market and other potential opportunities lost. The terms regarding the forfeiture or return of earnest money are usually outlined in the purchase agreement. It's important for both buyers and sellers to understand the terms of the contract regarding earnest money, and they may wish to consult with an attorney to ensure their rights and interests are adequately protected in the transaction.