Earnest money is a part of the home buying process. The money you give “in earnest” tells the current property owner that you have intent to follow through with the purchase of their property, and it ultimately goes to help fund the down payment for that property. It is unusual for a property owner to accept an offer without earnest money, as it is a type of financial promise to make a purchase.
Many people think of earnest money as a deposit, and that is essentially what it is. When a buyer makes an offer on a property, that property is taken off of the market while the offer is being considered. Without earnest money, a buyer could potentially put in offers on multiple properties, tying up the selling process for several owners. When the offer is accepted, the money that was put down in earnest will go toward a down payment and closing costs.
Some are hesitant to put down earnest money, believing that it is lost should the deal fall through. Should the purchase be terminated at some point in the process, earnest money may or may not be refunded, in part or full, depending on the terms of the contract. Before putting any money down in earnest on a property, a potential buyer should read the purchase agreement to understand who will hold the earnest money and what will happen to it if the deal does not occur.
An experienced real estate agent can walk you through the process of home buying, including the details of earnest money.