What is an "earnest money deposit"?

An "earnest money deposit" is a sum of money provided by a buyer to demonstrate commitment to their purchase offer. This deposit serves as a good faith gesture, indicating the buyer's serious intention to follow through with the transaction. It reassures the seller that the buyer is sincere and invested in the property. The earnest money is typically held in escrow and may be applied toward the buyer's down payment or closing costs if the transaction proceeds. If the deal falls through due to the buyer's fault, the seller may retain the earnest money as compensation.

Other options provided, such as listing fees, broker payments, or closing costs, do not accurately reflect the purpose or function of an earnest money deposit in real estate transactions. This distinction underscores the importance of understanding various financial terms and obligations in the real estate process.