In real estate transactions, what does the term 'earnest money' refer to?

The term 'earnest money' specifically refers to a good faith deposit made by a buyer to demonstrate their commitment to purchasing a property. This deposit is typically submitted along with the purchase offer and serves as a guarantee that the buyer is serious about the transaction. The earnest money is held in an escrow account and, upon successful completion of the sale, it is generally applied towards the buyer's down payment or closing costs.

This financial commitment not only reassures the seller that the buyer intends to proceed with the transaction but also helps to distinguish serious buyers from those who may not be fully committed. While the down payment is the total amount the buyer pays towards the purchase price upon closing, earnest money is specifically about showing good faith in the early stages of the transaction.