Earnest money deposit is...

• A. A cash deposit with the offer to prove intent to perform
• B. A loan used to purchase the property
• C. A service fee paid at closing
• D. A lender appraisal fee

Answer: (A)

Earnest money serves as a demonstration of the buyer's seriousness in a real estate deal. It is a cash deposit made when the buyer submits an offer, showing the seller that the buyer intends to carry through with the purchase. The funds are usually placed into an escrow account and later credited toward the purchase price at closing. It's not a loan, a closing service fee, or an appraisal fee; those are separate items in the transaction. The contract typically includes contingencies (financing, inspections, appraisal) that let the buyer back out with a refund of the earnest money. If the buyer breaches the contract outside of those contingencies, the seller may keep the earnest money as compensation, depending on the terms. In short, earnest money signals commitment and provides a mechanism to address breaches versus deals that fall apart due to contingencies.