What is earnest money in real estate transactions?

Earnest money is a deposit made by a buyer to demonstrate their serious intent to purchase a property. This amount is typically submitted with the purchase agreement to show the seller that the buyer is committed to proceeding with the transaction. It serves as a financial commitment that signals to the seller that the buyer is not just exploring options but is genuinely interested in completing the purchase.

If the transaction moves forward successfully, the earnest money is usually credited toward the buyer's down payment or closing costs. However, if the buyer fails to follow through on the purchase without a valid reason specified in the contract, the seller may retain the earnest money as compensation for taking the property off the market and potentially missing other buyers. This aspect of earnest money provides reassurance to sellers while offering buyers an opportunity to secure their desired property.

In contrast, the other options pertain to different aspects of real estate transactions. For instance, fees paid to an attorney, closing costs, and property inspection charges do not function in the same way as earnest money; they do not indicate intent to purchase but are rather costs associated with the transaction or legal processes involved.