What does a good faith deposit signify in a real estate transaction?

A good faith deposit, often referred to as an earnest money deposit, is a sum of money that a buyer provides to demonstrate their serious intent to purchase a property. This deposit acts as a commitment to the seller that the buyer will follow through with the transaction under the agreed-upon terms. Essentially, it assures the seller that the buyer is genuine in their offer, thus helping to secure the property while the details of the sale are being finalized.

This practice is common in real estate transactions, as it indicates trust and good faith between the buyer and the seller. Once the sale closes, the good faith deposit is typically applied towards the down payment or closing costs. If for any reason the transaction does not proceed, the handling of the deposit can vary based on the reason for the cancellation and the agreements in place, which may allow the buyer to recover their deposit under certain circumstances.