What is the purpose of earnest money in real estate?

Earnest money serves a critical role in real estate transactions by demonstrating the buyer's serious intent to purchase a property. When a buyer submits earnest money, it conveys to the seller that the buyer is committed to the transaction and is willing to back that commitment with a financial deposit. This initial deposit, usually held in an escrow account, indicates to the seller that the buyer is not just casually exploring options but is genuinely interested in moving forward with the purchase.

In essence, earnest money helps establish trust between the parties involved, reducing the likelihood of the buyer backing out without valid reasons, which could otherwise lead to disputes or wasted efforts for the seller. The amount of earnest money can vary based on the price of the property, local customs, and negotiation terms, but regardless of the amount, its primary function is to assure the seller of the buyer's serious intentions.