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 South Dakota, earnest money is a deposit made by a prospective buyer to demonstrate their serious intent to complete a real estate transaction. It is typically held in an escrow account during the period the property is under contract. While earnest money is not a legal requirement for a valid real estate purchase contract in South Dakota, it is a common practice to provide assurance to the seller. If the buyer defaults and does not finalize the purchase, the earnest money is usually forfeited according to the terms set forth in the purchase agreement, compensating the seller for the time the property was off the market. The specific regulations governing earnest money, escrow accounts, and the forfeiture of such deposits in the event of a default are typically outlined in the purchase agreement and are subject to state contract laws. It is important for both buyers and sellers to clearly understand the terms of the contract regarding earnest money, including conditions for refund, forfeiture, and dispute resolution.