What is "earnest money"?

Earnest money refers to a deposit made by a buyer when entering into a purchase agreement for real property. This deposit acts as a sign of good faith, indicating the buyer's serious commitment to the transaction. By providing earnest money, the buyer signals to the seller that they are invested in moving forward with the purchase and are less likely to back out of the deal without good reason.

This sum is typically held in an escrow account and is credited toward the buyer's closing costs or down payment when the sale is finalized. The use of earnest money helps establish trust between both parties and can serve to deter buyers from making frivolous offers on properties they aren't genuinely interested in.

In contrast to the other options, earnest money is distinct from late fees, down payments, or fees paid to real estate agents. Late fees are associated with missed loan repayments, while a down payment is a larger sum typically required by lenders as part of securing financing. Fees paid to agents are usually commission-based and relate to their services upon closing of a sale, rather than a preliminary deposit reflecting buyer intent.