Legal Definitions - caution money

Caution 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 fails to follow through with the purchase.

For example, if someone wants to buy a house, they may be required to put down a certain amount of caution money to show that they are serious about the purchase. If they later decide not to go through with the sale, they may lose this deposit.

Caution money is not just a token amount, as it can often be thousands of dollars. Its primary purpose is to serve as a source of payment for damages if the buyer defaults on the purchase.

It's important to note that caution money is not always necessary to make a purchase agreement binding. If the buyer and seller exchange mutual promises of performance, such as the buyer's promise to purchase and the seller's promise to sell at a specified price and terms, this can be enough to make the contract legally binding.