What is "earnest money" in real estate transactions?

Earnest money is a deposit made by a buyer to indicate their serious intent to purchase a property. This money is typically submitted when an offer is made and serves to reassure the seller that the buyer is committed to completing the transaction. By providing earnest money, buyers show that they are not just casually interested but are serious about moving forward with the purchase.

This financial commitment can also be a negotiating tool, as sellers are more likely to accept offers from buyers who demonstrate their earnestness through a substantial deposit. Additionally, earnest money may be applied towards the down payment or closing costs if the transaction proceeds successfully. If the transaction does not go through due to the buyer’s failure to fulfill their obligations, the seller may have the right to keep the earnest money as compensation for the time the property was off the market.

In contrast, a fee for listing a property, closing costs associated with the sale, or payments made to contractors for repairs do not represent the intent of securing the buyer's position in the transaction in the same way that earnest money does. Each of these other options pertains to different aspects of real estate transactions that are not directly related to the buyer's initial commitment to purchase a property.