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 Rhode Island, earnest money is a deposit made by a prospective buyer into an escrow account to demonstrate their good-faith intention to complete a real estate transaction. While earnest money is not a legal requirement for a valid real estate purchase contract, it is a common practice to provide the seller with assurance that the buyer is serious about the purchase. If the buyer defaults and does not finalize the transaction, 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 of earnest money, including any contingencies that may allow for its return to the buyer, should be clearly stated in the purchase and sale agreement. It's important for both buyers and sellers to understand the terms of the agreement regarding earnest money and to consult with an attorney if they have questions about their rights and obligations.