What is the purpose of an earnest money deposit?

The purpose of an earnest money deposit is to demonstrate the buyer's serious intent to purchase a property and to secure the agreement between the buyer and seller in the contract. This deposit shows that the buyer is committed to the transaction and is willing to provide a financial stake as a sign of good faith. If the transaction proceeds as intended, the earnest money is usually applied toward the buyer's down payment or closing costs.

In the context of real estate transactions, this deposit can also serve as a form of security for the seller, ensuring that the buyer is genuinely interested and reducing the likelihood of a frivolous offer. It provides a level of assurance that the buyer will follow through with the purchase, which can be crucial in a competitive market.

While the other options relate to aspects of the buying and selling process, they do not accurately define the primary purpose of the earnest money deposit. Sales price determination, closing cost coverage, and temporarily removing a property from the market each play roles in the transaction but are secondary to the core function of the earnest money deposit in establishing buyer commitment.