Earnest money is a deposit paid—often into an escrow account—to show a good-faith intention to complete a transaction—often a transaction for the purchase of real property (real estate).

If the prospective buyer defaults and fails to complete the transaction for the purchase of the real property (fails to close) the earnest money is usually forfeited and delivered to the would-be seller under the terms of the contract or agreement for the sale of the property.

Earnest money is generally not required for a valid contract for the purchase and sale of real property, but is often included to compensate the prospective seller for time and potential missed sales opportunities while the sale was “under contract” with the prospective buyer.

Earnest money may also be referred to as earnest; bargain money; caution money; hand money; or down payment.

In Minnesota, earnest money is a deposit made by a prospective buyer to demonstrate their serious intent to complete a real estate transaction. It is typically held in an escrow account during the period the property is under contract. While earnest money is not legally required to make a real estate contract valid, it is a common practice to provide assurance to the seller. If the buyer defaults and does not finalize the purchase, the earnest money is usually forfeited according to the terms set forth in the purchase agreement, compensating the seller for the time the property was off the market. However, the specific conditions under which earnest money may be forfeited or returned are governed by the terms of the contract and state law. It is important for both buyers and sellers to clearly understand and agree upon these terms before entering into a contract. In Minnesota, real estate transactions and escrow practices are also regulated by state statutes, which provide guidelines for the handling of earnest money and protect the interests of both parties in a real estate transaction.