Which of the following best describes earnest money?

Earnest money is best described as a deposit made by the buyer to demonstrate their seriousness and intent to purchase a property. This deposit serves as a sign of good faith to the seller, indicating that the buyer is genuinely interested in the transaction. It helps to secure the property while negotiations are ongoing, and typically, this money is held in an escrow account until the sale is finalized. If the deal goes through, the earnest money is often applied to the buyer’s closing costs or down payment.

The other options do not accurately capture the purpose and nature of earnest money. For example, while earnest money can sometimes be non-refundable under specific circumstances, it is generally refundable if certain conditions are not met. Additionally, it is not a mandatory fee for all buyers to pay in every situation, nor is it considered a portion of closing costs specifically. Understanding that earnest money is fundamentally about demonstrating commitment to the purchase is crucial for both buyers and sellers in a real estate transaction.