What does "earnest money" refer to in a real estate transaction?

Earnest money is a deposit made by the buyer to demonstrate their seriousness and commitment to the purchase of a property. This money is typically held in trust or escrow until the transaction is finalized. The earnest money serves as an assurance to the seller that the buyer is genuinely interested and intends to follow through with the transaction. If the buyer backs out without a valid reason outlined in the purchase agreement, the seller may retain the earnest money as compensation for the inconvenience and potential lost opportunities during that time.

In contrast, the other options reference different aspects of a real estate transaction. The fee paid to the realtor pertains to the commission structures and services rendered, while a down payment is the portion of the purchase price that the buyer pays upfront at closing. A loan used to finance the purchase relates to borrowing money to fund the transaction but is not related to the initial commitment shown by the buyer.