Earnest payment

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An Earnest payment (sometimes called Earnest money or simply Earnest) is a deposit towards the purchase of real estate made by a buyer to demonstrate that he/she is serious (earnest) about wanting to complete the purchase. When a buyer makes an offer to buy residential real estate, he/she generally signs a contract and pays a sum acceptable to the seller by way of earnest money. The amount varies enormously, depending upon local custom and the state of the local market at the time of contract negotiations.

In very lively markets (as experienced on the East and West coasts of the US between 2000 and 2005) earnest money deposits could be as high as 5% of the sales price or more. In other communities as little as $500 or $1000 is acceptable.

If the seller accepts the offer, the earnest money is held in escrow by the real estate broker or settlement or Title company until closing and is then applied to the buyer's portion of the remaining costs. If the offer is rejected, the earnest money is usually returned, since no binding contract has been entered into. If the buyer retracts the offer, the earnest is forfeited. Therefore, it is generally in the seller's best interest to see as high an earnest money deposit as possible.

In ancient times, the earnest payment was called an earnest penny, and also known as Arles penny, God's penny, or Argentum Dei. It signified money given to bind a bargain, especially for the purchase or hiring of a servant. Et cepit de praedicto Henrico tres denarios de Argento Dei prae manibus.^[1]This article incorporates content from the 1728 Cyclopaedia, a publication in the public domain. Another related term was luck money, which was an amount given back to the buyer, by the seller, on the completion of a deal, for luck.