Legal Definitions - bargain money

Bargain money, also known as earnest money, is a deposit made by a potential buyer to show their intention to complete a transaction, usually in the context of real estate. This deposit is often held in escrow and can be forfeited if the buyer defaults on the agreement.

While earnest money has traditionally been a small amount, such as a nickel or a dollar, in real estate transactions it can be a significant sum, sometimes amounting to thousands of dollars. It serves as a source of payment for damages if the buyer fails to fulfill their obligations.

For example, if a buyer wants to purchase a house for $200,000, they may be required to put down $10,000 in earnest money. If the buyer fails to complete the transaction, the seller may keep the earnest money as compensation for any damages incurred.

It's important to note that while earnest money is often used in real estate transactions, it's not essential to make a purchase agreement binding. The exchange of mutual promises between the buyer and seller is enough to create a legally binding contract.