EARNEST MONEY

EARNEST MONEY

earnest money. A deposit paid (often in escrow) by a prospective buyer (esp. of real estate) to show a good-faith intention to complete the transaction, and ordinarily forfeited if the buyer defaults. ? Although earnest money has traditionally been a nominal sum (such as a nickel or a dollar) used in the sale of goods, it is not a mere token in the real-estate context: it may amount to many thousands of dollars.

¡ª Also termed earnest; bargain money; caution money; hand money. Cf. BINDER(2); down payment under PAYMENT. [Cases: Vendor and Purchaser 69.1, 182. C.J.S. Vendor and Purchaser ¡ì¡ì 135, 137¨C138, 425.]

¡°The amount of earnest money deposited rarely exceeds 10 percent of the purchase price, and its primary purpose is to serve as a source of payment of damages should the buyer default. Earnest money is not essential to make a purchase agreement binding if the buyer’s and seller’s exchange of mutual promises of performance (that is, the buyer’s promise to purchase and the seller’s promise to sell at a specified price and terms) constitutes the consideration for the contract.¡± John W. Reilly, The Language of Real Estate 131 (4th ed. 1993).


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