Earnest Money is a deposit paid by a buyer to show serious intent to complete a transaction, especially in property deals or tenders.
Earnest Money, also known as Earnest Money Deposit (EMD), is an advance payment made to confirm a buyer’s commitment in a transaction. It is commonly used in real estate purchases, auctions, and government tenders.
The purpose of earnest money is to build trust between buyer and seller and ensure that the buyer does not back out without a valid reason. If the deal goes through, the amount is usually adjusted against the final payment.
However, if the buyer cancels the deal without valid justification, the earnest money may be forfeited. On the other hand, if the seller fails to complete the transaction, the amount is typically refunded to the buyer.
Earnest money amounts vary depending on the transaction but are generally a small percentage of the total value.
"A buyer agrees to purchase a property worth ₹50 lakh and pays ₹2 lakh as earnest money. This amount is later adjusted in the final payment when the deal is completed."