The ruling on earnest money

Question

Question: Here it is the custom that when negotiations take place over buying and selling something, then, to make the agreement firm and binding, the owner of the item takes some amount or cash rupees from the buyer; this is called earnest money. If the buyer takes the item in accordance with the negotiations, well and good; and if he does not take it, the earnest money is forfeited: it is not returned to the buyer. Is it correct according to the Sharia to do this or not?

Answer

This earnest money is a part of the price that is received in advance; then the rest of the price is received when the transaction becomes final. If the sale transaction is not concluded but comes to an end, it is necessary to return this earnest money; withholding it and treating it as forfeited is not correct.

Source: Fatawa Mahmudiyya

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