What does earnest money typically indicate in a real estate transaction?

Earnest money serves as a financial commitment from the buyer to demonstrate their serious intent to purchase a property. When a buyer makes an offer on a home, they often include an earnest money deposit, which reassures the seller that the buyer is genuinely interested and will follow through with the transaction if the offer is accepted. This deposit is typically held in an escrow account and shows the seller that the buyer has a vested interest and is financially stable enough to proceed with the purchase.

If the transaction proceeds smoothly, the earnest money is generally applied toward the buyer's closing costs or down payment. However, if the buyer withdraws from the deal without valid reasons as outlined in the purchase agreement, the seller may have the right to keep the earnest money as compensation for the time taken off the market and other potential losses incurred.

In contrast, the other options do not accurately reflect the role of earnest money in real estate. While it may influence negotiation dynamics, it is primarily about demonstrating intent rather than guaranteeing a sale or serving as a standard fee for agents.