What does "earnest money" represent in real estate?

Earnest money serves as a financial commitment made by a buyer to indicate their serious intent to purchase a property. This deposit is typically submitted along with the offer to buy a home and is held in escrow until closing. The primary aim of earnest money is to protect the seller from potential buyers who may make offers but have no genuine intention to follow through. By putting down earnest money, the buyer demonstrates their commitment to the transaction, showing that they are serious about moving forward.

This deposit can also provide assurance to the seller, signaling that the buyer is not just casually interested, but is prepared to take steps toward completing the purchase. Importantly, the earnest money is usually applied to the buyer’s down payment or closing costs once the sale is finalized, reflecting its role in the overall transaction process.