What is earnest money in a real estate transaction?

Earnest money is a deposit made by a buyer to demonstrate their serious intent to purchase a property. This money signals to the seller that the buyer is committed to following through with the transaction. When an offer is made on a property, the inclusion of earnest money helps establish the buyer's sincerity and can strengthen their negotiating position. This deposit is typically held in an escrow account until the transaction is completed, at which point it can be applied toward the down payment or closing costs. If the sale does not go through, the terms of the purchase agreement will dictate whether the buyer gets the earnest money back or if it is forfeited to the seller as compensation for the time the property was taken off the market.

In contrast, the other options describe different aspects of real estate transactions. A fee paid to the real estate agent relates to the commission for their services, while a loan secured by property refers to financing options, and a payment made at closing occurs at the final stage of the transaction. Each of these does not encapsulate the purpose and significance of earnest money in the context of securing a buyer's intent.