Earnest Money

Money put down by a potential buyer to show that they are serious about purchasing the home; it becomes part of the down payment if the offer is accepted, is returned if the offer is rejected, or is forfeited if the buyer pulls out of the deal. During the contingency period the money may be returned to the buyer if the contingencies are not met to the buyer's satisfaction.

Earnest is a serious mental state of intent - a proposal made in earnest will more likely be received favorably. The seriousness of the intent (when persisted will generally) result in actions to be of considerable or impressive degree or amount. For example one observing earnestness might say, "the woman was earnest in her vigilance of completing her objective, this earnest intent has served her well. "Earnest has other examples in life: an earnest payment (sometimes called earnest money or simply earnest, or alternatively a good-faith deposit) is a deposit towards the purchase of real estate or publicly tendered government contract made by a buyer or registered contractor 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 (in states like New York) or by a settlement or title company (in states like California, Florida, and Texas) 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 or does not fulfill its obligations under the contract, 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. According to Black's Law Dictionary (sixth ed. ), Et cepit de praedicto Henrico tres denarios de Argento Dei prae manibus. 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.