Kovats Real Estate School Practice Test 2025 – Complete Exam Guide

In a real estate transaction, "earnest money" is a deposit made by the buyer to show their serious intent to purchase a property. This upfront payment is typically submitted along with the purchase offer and serves as a good faith gesture, indicating that the buyer is committed to going through with the transaction. The earnest money is often held in an escrow account until the sale is finalized, at which point it can be applied toward the purchase price or, in some cases, the closing costs.

This concept is crucial because it not only signifies the buyer's intention but also provides the seller with a level of security; it mitigates the risk of the buyer backing out of the deal without a valid reason. If the transaction were to fall through due to contingencies as specified in the purchase agreement, there may be provisions for the buyer to retrieve their earnest money. However, if the buyer fails to fulfill the contract without a valid reason, the seller may have the right to retain the earnest money as compensation for the lost opportunity.