Earnest payment
An earnest payment or earnest money, also known as EMD is a specific form of security deposit made in some major transactions such as real estate dealings or required by some official procurement processes to demonstrate that the applicant is serious and willing to demonstrate an earnest of good faith about wanting to complete the transaction.
In the Middle Ages, the earnest payment was called variously an earnest penny, Arles penny, or God's silver. It was either money or a valuable coin or token given to bind a bargain, notably for the purchase or hiring of a servant. According to Black's Law Dictionary, Et cepit de praedicto Henrico tres denarios de Argento Dei prae manibus.
A potential buyer of property of high value such as residential real estate generally signs a contract and pays a sum acceptable to the seller by way of earnest money. The amount varies enormously, depending upon local custom and the state of the local market at the time of contract negotiations.
If the seller accepts the offer, the earnest money is held in trust or escrow.
These funds may be held directly by the seller's attorney, the real estate broker or by a settlement or title company.
When the transaction is settled then the deposit is applied to the buyer's portion of the remaining costs. If the offer is rejected, the earnest money is usually returned, since no binding contract has been entered into.