Define: Earnest Payment

An earnest payment, also known as earnest money or a good faith deposit, is a sum of money provided by a buyer to a seller as a demonstration of their serious intent to purchase a property or enter into a contract. It is typically paid upfront when an offer is made on a property or a contract is signed, and it shows the seller that the buyer is committed to the transaction. If the sale or contract proceeds as planned, the earnest payment is often applied towards the down payment or closing costs. However, if the buyer fails to fulfil their obligations under the contract, the earnest payment may be forfeited to the seller as compensation for their time and effort. Earnest payments help provide assurance to sellers and can strengthen the credibility of the buyer’s offer.

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This glossary post was last updated: 29th March 2024.