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 is typically several thousand dollars, but usually less than five percent of the purchase price. If the seller does not accept the buyer's contract, the money is returned to the buyer.