What is earnest money in a real estate transaction?

Earnest money deposit is an important element of a purchase agreement. It is typically at least 1% of the purchase price and will be held in a separate account by a title company or broker. If you are buying a $200,000 house, you should offer at least $2,000 as earnest money (emd). This shows good faith in your purchase. If there are major problems with the house on inspection, most contracts allow the buyer to be released from the contract and get their earnest money returned to them. The earnest money will be used as part of the buyer’s down payment at the closing.