What is 'earnest money' in a real estate transaction?

Earnest money is a deposit, typically 1 to 3% of the purchase price, that a buyer puts down after their offer is accepted. Held in escrow by a neutral third party, it signals commitment to the seller. If the sale closes, earnest money is applied toward the down payment or closing costs. If the buyer backs out without a valid contract contingency, the seller typically keeps the deposit.