It's probably fair to say that buying a home in today's market has never been more competitive.

Buyers are therefore looking to see how they can differentiate themselves from others. One of the most effective ways of achieving this can be to support an offer with a good faith deposit, more commonly referred to as earnest money.

Earnest money is a great way to show the sellers how serious you are about their property and to demonstrate that you are very committed to the sale. From the sellers' point of view, it usually indicates that the buyer in question isn't making multiple offers and is solely focused on acquiring their home.

It is arguably particularly useful if you are making an offer contingent on the sale of your own property. In this situation the seller is taking the chance that you will be able to sell your property, so earnest money is a good way of expressing your determination to get things done.

Typically, earnest money represents around 1-3% of the agreed price of the home in question. It is held in an escrow account and deducted from the transaction at closing time.

Earnest money does carry a risk for the buyer, in that if the buyer backs out of the offer for non-contingent reasons then it is forfeited and goes to the seller. It is refunded, however, if the seller decides to back out of the deal for any reason or if there's an unsatisfactory inspection or failure to meet other contract contingencies, such as an overvalued appraisal or if you are unable to obtain finance (but only if these are contingent in the offer contract).