Earnest Money

Earnest money is a deposit paid by a prospective buyer to a seller as a demonstration of genuine intent and good faith in a purchase transaction — most commonly in real estate — at the time of signing a sale agreement or memorandum of understanding, before the final sale deed is executed. The earnest money amount (typically 1% to 5% of the transaction value) is held in trust and applied toward the purchase price at closing. If the buyer fails to complete the purchase without a valid legal reason, the seller typically retains the earnest money as compensation. If the seller defaults or fails to complete the transaction, the buyer is generally entitled to a refund of the earnest money plus damages. In India, real estate earnest money disputes are governed by the Indian Contract Act, 1872 and RERA regulations. For investors on Ventura Securities evaluating real estate developers listed on Indian exchanges, the quantum of earnest money deposits received from homebuyers — disclosed as advances from customers — is a leading indicator of new booking momentum and pre-sales cash flow strength.