Who pays earnest money in a real estate transaction?

In a real estate transaction, the earnest money is typically provided by the buyer. This deposit serves to demonstrate the buyer's seriousness and commitment to purchasing the property. By placing earnest money, the buyer indicates that they are willing to move forward with the purchase and are making a good faith effort to finalize the transaction. This amount is usually held in an escrow account until the closing process is completed, at which point it is often applied toward the buyer's closing costs or down payment.

The practice of providing earnest money is important as it not only shows the seller that the buyer is earnest about their intent to buy the property but also offers the seller some security that the buyer won't walk away from the deal without valid reason. If the transaction does not proceed due to contingencies outlined in the purchase agreement, the buyer may receive their earnest money back, but if the buyer defaults without any agreed-upon contingencies, the seller might retain the earnest money as compensation for the time and opportunity lost.