Earnest money is a cash deposit buyers make when they sign a contract to buy a house. It makes the contract binding and signifies the intention of the buyer to complete the purchase. At closing, the earnest money becomes part of the down payment. If the buyer defaults without a good reason, as spelled out in the contract, the earnest money becomes payment for damages suffered by sellers and their agents.

The earnest deposit could be several hundred or even several thousand dollars, but usually no more than 5% of the purchase price. If the buyer's contract is not accepted by the seller, the money is returned to the buyer.