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earnest money sometimes referred to as a good faith deposit is money that a buyer pays to the seller at the time of entering into a contract usually in a real estate transaction for the purchase of land or property it shows that the buyer is serious about following through with the purchase once the funds are deposited they are usually held in escrow escrow is an arrangement where a third party is used to hold something of value for the two parties involved where the third party itself is not a part of the transaction earnest money may or may not be refunded if the transaction subsequently falls apart before the purchase is finalized transactions may fail due to many reasons including but not limited to title issues inspection issues appraisal issues or any other material defects associated with the transaction the buyer and seller may agree on the terms in which the earnest money may be returned to the buyer if the transaction fails before it is finalized due to the buyer either volu
