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 New Jersey, earnest money is a deposit made by a 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. While earnest money is not legally required to create a binding contract for the sale of real estate, it is a common practice to provide assurance to the seller. If the buyer defaults on the agreement without a valid legal reason, the earnest money is usually forfeited to the seller as compensation for the time the property was off the market and other potential opportunities lost. The specific terms regarding the forfeiture or return of earnest money are dictated by the purchase agreement, and it is crucial for both parties to clearly understand these terms before entering into the contract. New Jersey's real estate laws and regulations govern the handling of earnest money, and it is advisable for parties involved in such transactions to consult with an attorney to ensure that their rights and interests are adequately protected.