Earnest money is a term used in real estate and other transactions to describe an initial payment made by a buyer or tenant to demonstrate their serious intent to complete the purchase or lease. This payment is typically held by a third party, such as an escrow agent or attorney, until the transaction is completed. The amount of earnest money varies depending on the type and size of the transaction but it usually ranges from 1% to 5% of the total purchase price.
The purpose of earnest money is to show good faith by both parties involved in the transaction. For the buyer or tenant, it demonstrates their commitment to follow through with the deal. For the seller or landlord, it provides assurance that the buyer or tenant is serious about completing the purchase or lease and is less likely to back out of the agreement.
In summary, earnest money is a deposit made by a buyer or tenant to demonstrate their commitment to complete a real estate transaction, while providing assurance for the seller or landlord that the deal will proceed as planned.