Earnest money shows up in almost every real estate contract — here’s what it actually is and why it matters.

What it represents

It’s a deposit a buyer puts down to show they’re serious about the purchase, typically held in escrow until closing.

What happens to it at closing

It’s usually applied toward the buyer’s down payment or closing costs, effectively becoming part of the purchase price rather than an extra fee.

What happens if a deal falls through

Depending on the contract terms, earnest money may be returned to the buyer or forfeited to the seller, depending on why the deal didn’t close and what contingencies applied.

In a straightforward cash sale, this is one less thing to negotiate and track — the offer and closing terms are typically much simpler.