Earnest money is a deposit made to a seller showing the buyer’s good faith in a transaction. Earnest money allows the buyer additional time when seeking financing. Earnest money is typically held jointly by the seller and buyer in a trust or escrow account.
The earnest money paid is put toward the buyer’s down payment when the transaction is finalized. The transaction is usually finalized after appraisals are done and the buyer secures financing with the bank. If the deal falls through, the buyer may or may not be able to reclaim his or her earnest money, depending on how the contract is phrased.