Also called: Advance money, Bayana, Earnest deposit
The advance a buyer pays under an agreement to sell, as a guarantee of performance. If the buyer backs out without cause, the agreement usually lets the seller keep it.
How it works and what to check
Earnest money is larger than a token and is tied to the agreement's terms. A well-drafted agreement says when it may be forfeited, how much, and what the buyer gets back if the seller fails to perform.
Courts have held that forfeiture of earnest money is allowed only where it was truly earnest money and the amount is reasonable. In a bank auction the equivalent is the EMD.
Common questions
Can the seller keep the earnest money?
If the buyer defaults and the agreement provides for forfeiture, often yes. A large forfeiture can be challenged as unreasonable.
Is earnest money part of the price?
Yes. It is adjusted against the price on completion.