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 Massachusetts, earnest money is a deposit made by a prospective buyer into an escrow account to demonstrate their good-faith intention to purchase real estate. While earnest money is not legally required to form a valid real estate purchase contract, it is a common practice to include it as a sign of the buyer's commitment. If the buyer defaults and does not complete the purchase, the earnest money is typically 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 potential opportunities lost during that period. The terms governing the forfeiture or return of earnest money should be clearly stated in the purchase and sale agreement to avoid disputes. It is advisable for both buyers and sellers to consult with an attorney to understand their rights and obligations related to earnest money in a real estate transaction.