What does the term "earnest money" refer to in real estate transactions?

The term "earnest money" refers to a security deposit made by a buyer to demonstrate their seriousness about purchasing a property. This deposit is typically submitted along with an offer on the property, acting as a gesture of good faith to the seller. By providing earnest money, the buyer shows they are committed to the transaction, which may help them stand out in a competitive market.

If the offer is accepted, the earnest money is held in an escrow account and later applied towards the purchase price at closing. If the buyer backs out for reasons not covered by the contract, they may forfeit the earnest money to the seller. This ensures that the buyer is motivated to follow through with the purchase, making it a crucial component of real estate transactions.

The other choices reflect different financial components of real estate but do not accurately capture the essence of earnest money.