Michigan License Law Practice Test

Which factor is used to assign a status of earnest money in real estate transactions?

1. The buyer's credit score

2. The total sale price of the property

3. The property's location

4. The seller's motivation to sell

The correct answer is: The total sale price of the property

The total sale price of the property is a critical factor in determining the status of earnest money in real estate transactions. Earnest money is typically a percentage of the sale price and serves as a good faith deposit from the buyer to show their commitment to the purchase. Higher sale prices generally lead to larger earnest money deposits, which can provide more reassurance to the seller that the buyer is serious about proceeding with the transaction. The other factors, such as the buyer's credit score, the property's location, and the seller's motivation to sell, may influence the overall transaction but do not directly dictate the amount of earnest money required. Therefore, understanding the correlation between the total sale price and the earnest money amount is essential in real estate dealings.