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 Virginia, earnest money is a deposit made by a prospective buyer to demonstrate their serious intent to purchase real estate. This deposit is typically held in an escrow account during the period the property is under contract. Virginia law does not mandate the payment of earnest money for a real estate purchase contract to be valid. However, it is a common practice to include earnest money in such transactions to show good faith and to provide the seller with some security. If the buyer defaults on the contract without a lawful reason, the earnest money is usually forfeited to the seller, according to the terms outlined in the purchase agreement. The specific conditions under which earnest money may be forfeited or returned are typically detailed in the real estate contract, and parties are advised to clearly understand these terms before entering into the agreement. An attorney can provide guidance on the implications of earnest money in a real estate transaction and help ensure that the contract terms protect their client's interests.