Earnest money is used while buying and selling a house. It is the sum of money the buyer deposits to get into a purchase agreement with the seller. It is also called a “good faith deposit.”
Earnest money essentially works as an assurance to the seller for his consideration of the buyer's offer. It demonstrates the buyer is serious about following through with the deal and shows they are a strong candidate for buying the home.
Technically, you can get into the purchase contract without issuing earnest money. Also, it is not a requirement to get into a purchase agreement to buy a house.
There is no set rule for the earnest money amount. The amount is highly negotiable, and often depends on whether it is a buyer's market or a seller's market at the time. Typically, it's about 1% to 3% of the sale price.
The seller can refuse to release the earnest money if there is a dispute on who is at fault for the deal's fallout. Since a third party holds the money, buyers do not have access to it.