What is the purpose of earnest money in a real estate transaction?

The purpose of earnest money in a real estate transaction is to represent good faith by the buyer. It serves as a deposit that demonstrates the buyer's serious intention to purchase the property. By putting down earnest money, the buyer is signaling to the seller that they are committed to following through with the transaction, which helps to establish trust between both parties.

Earnest money can also have practical implications—it may be applied towards the purchase price or closing costs later on if the sale proceeds. However, its primary role is to act as a sign of good faith and commitment. In the case that the buyer backs out of the deal without a valid reason as defined in the purchase agreement, the seller may be entitled to keep the earnest money as compensation for the lost opportunity.

While other options mention aspects such as closing costs or securing the title, these are not the primary functions of earnest money in a transaction.