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Earnest Money - Definition & Advantages of Earnest Money | What is Earnest Money?

Earnest Money is a minor deposit paid by potential property buyers to sellers, signaling their willingness to purchase. If the buyer's bid fails, they receive a refund. 

What is Earnest Money?

Earnest Money, or a 'token amount,' is a small deposit provided to sellers to express interest in a property. After paying the deposit, buyers have time to plan their overall investment and perform a thorough evaluation. The token amount ranges between 1-3% of the property's total value and stays with a third party until the deal closes. 

Earnest money is also used in government and private projects, often referred to as Tender Security or Bid Bond. 

Advantages of Earnest Money

Earnest money benefits both buyers and sellers. For sellers, it helps identify serious offers and choose the right buyers. If a buyer withdraws, the seller still has the deposit. For buyers, earnest money affords them extra time for financial planning and property inspection. They may cancel the contract and receive a refund under specific conditions. 


Earnest money acts as a security deposit for both parties. Buyers can withdraw if they find issues with the property, and sellers can identify serious buyers.