What best describes the “earnest money” held in escrow during a transaction?

Earnest money is a specific deposit made by the buyer as part of a real estate transaction to demonstrate serious intent to purchase the property. This sum is held in escrow until the transaction is finalized, providing assurance to the seller that the buyer is committed. By offering earnest money, the buyer signals good faith in their offer, indicating they are not merely making casual inquiries but are genuinely interested in completing the purchase.

This deposit typically appears as a small percentage of the purchase price and is applied toward the buyer’s overall costs at closing. If the transaction proceeds successfully, the earnest money is typically credited toward the buyer's down payment or closing costs. If the transaction does not complete — depending on the contingencies specified in the purchase agreement — the money may be returned to the buyer or forfeited to the seller, highlighting its role as a commitment rather than a mere formality.

Other options, while related to aspects of a real estate transaction, do not accurately reflect the purpose and nature of earnest money.