What is the typical role of earnest money in a real estate transaction?

In a real estate transaction, earnest money serves as a demonstration of the buyer's serious intent to proceed with the purchase of a property. By providing earnest money, the buyer shows that they are committed to the transaction and are willing to put down a tangible amount of money as a sign of good faith. This helps reassure the seller that the buyer is not merely 'kicking the tires,' but is genuinely interested in completing the sale.

While earnest money can be applied toward the purchase price or may cover certain closing costs later in the transaction, its primary purpose is to establish the buyer’s commitment and can also potentially compensate the seller if the buyer fails to fulfill their obligations, depending on the terms of the contract. Thus, the correct answer highlights the symbolic importance of earnest money in the overall negotiation and trust-building processes within real estate transactions.