An earnest money deposit is a sum of money that a buyer provides to a seller as a sign of good faith when entering into a real estate contract. This deposit demonstrates the buyer's serious intent to purchase the property and provides assurance to the seller that the buyer is committed to the transaction.

The amount for an earnest money deposit varies depending on the real estate market and the property's price. Typically, it ranges from 1% to 3% of the purchase price. In competitive markets, buyers might offer a higher deposit to strengthen their offer.

Once the buyer and seller have agreed to the terms, the earnest money is usually held in an escrow account by a third party, such as a real estate brokerage, title company, or legal firm. This ensures the funds are safe and only released under agreed conditions. A SCB Successful Transaction: If the sale goes through as planned, the earnest money is applied towards the buyer's down payment or closing costs.

Most real estate contracts include contingencies—conditions that must be met for the sale to proceed. Common contingencies include home inspections, financing approval, and appraisal values. These contingencies protect the buyer, allowing them to withdraw from the deal without losing their earnest money if certain conditions aren't met.