The primary purpose of earnest money in a real estate transaction is to?

The primary purpose of earnest money in a real estate transaction is to?

• A. Act as a down payment
• B. Show the buyer's commitment to the purchase
• C. Cover closing costs
• D. Reduce agent commissions

Answer: (B)

Earnest money serves as a crucial indicator of a buyer's serious intent to proceed with the purchase of a property. By providing this deposit, the buyer demonstrates commitment and good faith to the seller, indicating that they are genuinely interested in the transaction. This upfront money is typically held in escrow and signals to the seller that the buyer is invested in the process, helping to build trust between the parties. While it can sometimes be applied to the purchase price at closing, which might make it seem like a down payment, the primary function is not as a down payment. It is also not meant for covering closing costs, which are separate expenses incurred during the finalization of the sale. Additionally, earnest money does not impact real estate agent commissions, as these are typically negotiated separately and not dependent on the earnest money amount.

Earnest money serves as a crucial indicator of a buyer's serious intent to proceed with the purchase of a property. By providing this deposit, the buyer demonstrates commitment and good faith to the seller, indicating that they are genuinely interested in the transaction. This upfront money is typically held in escrow and signals to the seller that the buyer is invested in the process, helping to build trust between the parties.

While it can sometimes be applied to the purchase price at closing, which might make it seem like a down payment, the primary function is not as a down payment. It is also not meant for covering closing costs, which are separate expenses incurred during the finalization of the sale. Additionally, earnest money does not impact real estate agent commissions, as these are typically negotiated separately and not dependent on the earnest money amount.