What does the term "earnest money" mean?

The term "earnest money" refers to a deposit made by the buyer to demonstrate their serious intent to purchase a property. This money shows the seller that the buyer is committed to the transaction and intends to follow through with the purchase. Typically, earnest money is submitted along with an offer to buy, and it helps to secure the buyer's position in the negotiations. If the sale goes through, this deposit is usually applied to the buyer's closing costs or down payment. If the transaction falls through due to contingencies specified in the contract, the earnest money may be returned to the buyer, but if the buyer breaches the contract without valid reason, the seller might retain the earnest money as compensation for the lost opportunity. This practice is customary in real estate transactions as a way to build trust between the parties involved.