In real estate transactions, what is an earnest money deposit?

An earnest money deposit is a sum of money provided by a buyer to demonstrate their serious intention to purchase a property. This deposit is typically made when an offer is submitted and serves as a good faith gesture to the seller, indicating that the buyer is committed to following through with the transaction.

This deposit is often held in an escrow account and is applied toward the buyer's down payment or closing costs at the closing of the sale. The earnest money can help to secure the buyer's position while the transaction is being finalized, showing the seller that the buyer is not just casually interested but is willing to put money on the line to back up their offer.

Understanding the role of earnest money deposits is crucial in real estate transactions, as they help facilitate trust and commitment between buyers and sellers.