Money pledged by a buyer to show good faith when making an offer to buy a home serves what purpose?

• A. to fund the loan
• B. to confirm the property value
• C. to cover closing costs
• D. to show good faith and protect the seller in buyer default

Answer: (D)

Earnest money is a deposit that a buyer puts down with an offer to show they’re serious about purchasing. It serves to protect the seller by providing a financial incentive for the buyer to follow through and by securing a remedy if the buyer backs out without a valid reason. This money is usually held in escrow and, if the deal closes, it’s applied toward the buyer’s down payment or closing costs. If the buyer defaults outside the contract’s allowed contingencies, the seller may keep the earnest money as compensation for the time the home was off the market. It isn’t used to fund the loan or to determine property value, and while it can be credited toward closing costs, its primary purpose is to demonstrate good faith and provide a remedy if the buyer withdraws improperly.