Legal Definitions - hand money

Hand money refers to an initial payment, typically made directly and immediately (often in cash), given by one party to another to demonstrate a serious commitment to a proposed agreement. Its primary purpose is to solidify the bargain, showing good faith and ensuring that the payer intends to proceed with the transaction.

Here are a few examples to illustrate this concept:

• Real Estate Purchase: Imagine a couple, Sarah and Tom, find their dream home. To show the seller they are serious about buying, they submit an offer along with a check for $5,000. This $5,000 is considered hand money, or earnest money, which is held in escrow. It legally binds their offer and assures the seller that Sarah and Tom are committed to completing the purchase, provided all conditions are met.

  This illustrates hand money because the payment is an upfront deposit made to secure the property and demonstrate the buyers' commitment to the large transaction.

• Vehicle Reservation: David is looking to buy a rare vintage car from a private seller. He inspects the car and wants to purchase it, but needs a few days to arrange financing and a pre-purchase inspection. To prevent the seller from selling the car to someone else in the meantime, David pays the seller $500 in cash. They agree that this $500 will be applied to the purchase price if the deal goes through, but will be forfeited if David backs out without a valid reason.

  Here, the $500 cash payment acts as hand money, binding the seller to hold the car for David and showing David's serious intent to buy.

• Contract for Services: A small business, "InnovateTech," wants to hire a highly sought-after freelance web developer, Maria, for a new project. Maria has a busy schedule, so to secure her services and ensure she prioritizes their project, InnovateTech pays her an upfront retainer of $1,000. This payment guarantees Maria's availability and commitment to start the project on the agreed date.

  This example shows hand money as an initial payment made to secure a professional's time and commitment to a future service agreement.