What is earnest money?

Earnest money is a deposit made by a buyer to demonstrate their commitment to purchasing a property. This money serves as a sign of good faith to the seller, indicating that the buyer is serious about proceeding with the purchase. Typically, the earnest money is held in an escrow account until the sale is finalized. If the transaction goes through, the earnest money is often applied toward the buyer's down payment or closing costs.

In real estate transactions, earnest money plays a crucial role in establishing trust between the buyer and seller. It provides an assurance to the seller that the buyer is genuinely interested in moving forward with the purchase, which can help to reduce the likelihood of the buyer backing out without a valid reason.

Other options do not accurately describe earnest money. For instance, paying a fee for listing a property relates to the seller's obligations rather than the buyer's commitment. Closing costs refer to additional fees involved in finalizing the sale, which are separate from earnest money. Lastly, a fee charged by the broker upon closing refers to the broker's commission for facilitating the transaction, which is also not related to the concept of earnest money.