earnest money

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Related to earnest money: option money, earnest money contract

Earnest money

Money given to a seller by a buyer to demonstrate the buyer's good faith. If the deal falls through, the deposit is usually forfeited.

Earnest Money

A small amount of money that a seller requires a potential buyer to deposit before a transaction is completed. Earnest money ensures that the potential buyer is serious about the transaction and will be likely to complete it when the time comes. If the buyer subsequently withdraws from the deal, he/she usually forfeits the earnest money. It is common in real estate and securities (where it is usually called a good faith deposit). Earnest money reduces the risk to the seller. It is also called a binder.

earnest money

A deposit of money made by the purchaser of real estate. It can serve the following purposes:

• It shows evidence of economic resources and the probable ability to proceed to closing.

• It provides hostage value because of the usual contract provision that seller may retain the earnest money in the event of default.

• It may allow enforcement of a contract that might be defective on purely technical grounds. For example, some states allow enforcement of an oral real estate contract when there has been partial performance by the payment of earnest money. This occurs often, as when a buyer submits a written offer for property and an earnest money check. The seller makes a verbal counteroffer, and the buyer verbally accepts. The seller deposits the check. No one ever thinks to prepare a new written contract for signatures. Standing alone, this is an oral contract that is unenforceable under the Statute of Frauds.

References in periodicals archive ?
To sum up, earnest money, if performing all three functions-the payment, evidential and a guarantee-can be used as one of the means to secure a contract.
First City Realty's failure to make the earnest money deposits followed the death of Larry Day, the owner and president of First City Realty, which occurred after the contract was signed.
Under the Civil Code of the Republic of Lithuania, earnest money shall be deemed to be a monetary amount issued by one contracting party from the payments due to be paid by him under a contract to the other party to prove the conclusion of the contract and secure its performance.
The Purchaser made a non-refundable initial earnest money deposit with the Company and the Purchaser is required under the Merger Agreement to make an additional earnest money deposit upon its satisfaction of the financing condition.