Why is an "Earnest Money Deposit" used in real estate transactions?

An "Earnest Money Deposit" serves a crucial role in real estate transactions by demonstrating a buyer's serious intent to purchase a property. This deposit is typically a small percentage of the property's purchase price, provided upfront when an offer is made. By putting down earnest money, the buyer shows the seller that they are committed to following through with the buy, which can make the offer more attractive in a competitive market.

This deposit also serves to protect the seller in case the buyer decides to back out of the deal without a valid reason. If the buyer were to not proceed with the purchase without justification, the seller can often keep the earnest money as compensation for taking the property off the market and potentially losing other interested buyers.

The other options touch on various aspects of a real estate transaction but do not accurately reflect the primary purpose of the earnest money deposit. For instance, while closing costs are part of the transaction process, the earnest money is distinct and not designated for that purpose. Similarly, although real estate agents earn commissions for their services, earnest money is not directly used for this. Lastly, securing a loan involves a separate process, typically involving lender assessments and appraisals, which is not related to the earnest money itself. Therefore, the main function of