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 Kentucky, earnest money is a deposit made by a prospective buyer to demonstrate their serious intent to purchase real estate. It is typically held in an escrow account during the negotiation period. While earnest money is not legally required to make a real estate contract valid, it is a common practice to provide assurance to the seller. If the buyer defaults on the agreement and fails to complete the purchase, the earnest money is usually forfeited to the seller, according to the terms outlined in the purchase agreement. This forfeiture compensates the seller for the time the property was off the market and for any other potential sales opportunities that may have been missed. The terms regarding earnest money, including the amount, conditions for return or forfeiture, and other details, should be clearly stated in the real estate purchase contract. It is important for both buyers and sellers to understand these terms and consult with an attorney if they have questions about their rights and obligations regarding earnest money in a real estate transaction.