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 York, 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. While earnest money is not legally required to form a valid real estate purchase contract, it is a common practice to provide assurance to the seller. If the buyer defaults on the agreement without a lawful reason, the earnest money is usually forfeited to the seller, according to the terms set forth in the purchase agreement. The exact conditions under which earnest money may be forfeited or returned are typically specified in the contract, and New York state law requires clear communication of these terms. It's important for both buyers and sellers to understand the provisions related to earnest money in their specific contract to ensure their rights are protected.