Legal Definitions - bargain money

Bargain money is another term for earnest money. It refers to a deposit made by a buyer to a seller, demonstrating the buyer's serious intent and commitment to complete a purchase agreement. This sum is typically held in an escrow account and is usually applied towards the total purchase price if the transaction successfully closes. If the buyer defaults on the agreement without a contractually defined reason, the seller may be entitled to keep the bargain money as compensation for their time and lost opportunities. Conversely, if the seller defaults or if the buyer withdraws due to a valid contingency outlined in the contract, the bargain money is typically returned to the buyer.

Here are some examples illustrating how bargain money works:

• Example 1: Real Estate Purchase

  A family finds their dream home and submits an offer to the seller. Along with their offer, they include a check for $15,000 as bargain money. This deposit is held by a title company in an escrow account. By providing this sum, the family signals to the seller that they are serious buyers, committed to proceeding with the purchase if their financing is approved and the home inspection is satisfactory. If they were to back out without a valid reason specified in the contract (like a failed inspection or inability to secure a loan), they might forfeit this $15,000 to the seller.

• Example 2: Custom Vehicle Order

  A car enthusiast decides to order a highly customized luxury vehicle directly from the manufacturer. The manufacturer requires a 20% upfront deposit, totaling $50,000, before they begin the specialized production process. This $50,000 acts as bargain money, assuring the manufacturer that the buyer is genuinely committed to purchasing the unique vehicle, which cannot be easily resold if the buyer changes their mind. This deposit covers the initial costs and secures the buyer's place in the production queue.

• Example 3: Business Acquisition

  A larger corporation is in negotiations to acquire a smaller software company. To demonstrate their serious intent during the extensive due diligence period and to prevent the software company from entertaining competing offers, the corporation places $250,000 into an escrow account. This bargain money signifies their commitment to the acquisition, provided that the financial audit and legal review reveal no significant issues. If the corporation were to withdraw from the deal without a valid reason outlined in the acquisition agreement, the software company might be entitled to keep this deposit as compensation for the time and resources expended during negotiations.