Good Faith Money

Good faith sum of money given to bind a contract, for example an agreement to purchase real property, or a commitment fee to assure an advance of funds by a lender. In a real estate transaction, the money is applied to the purchase price and is forfeited if the purchaser fails to carry out the terms of the agreement.

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A deposit made by a purchaser of real estate to evidence good faith.


Example: It is customary for the buyer to give the seller earnest money at the time a sales contract is signed. The earnest money generally is credited to the down payment at closing. Until closing a broker must hold earnest money in a separate account.
See also commingle.

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The deposit of money into an account by a buyer to show that he or she has the intention of completing the deal. In most cases, the deposit amount will be a percent of the amount owed.

The money in an account can also be known as "margin" or a "performance bond", depending on the type of transaction.

Investopedia Says:
An example would be a homebuyer depositing money into an escrow account. When this is done, the seller of the home knows that the buyer will fulfill the terms of the contract and make the purchase.

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