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

Earnest money serves as a financial reassurance to the seller that the buyer is serious about their intention to purchase the property. By providing earnest money, the buyer demonstrates not only their commitment to the transaction but also their financial capability to follow through with the purchase. This deposit is typically held in an escrow account until the closing of the sale, helping to secure the agreement between the buyer and seller.

In addition to indicating intention, earnest money also helps compensate the seller for any inconvenience or loss if the buyer defaults on the agreement, as it is generally non-refundable under certain conditions. Thus, it reflects the buyer's good faith in entering the contract, which is a crucial aspect of real estate transactions.

While other options may pertain to different aspects of real estate or mortgage financing, they do not accurately reflect the primary function of earnest money in this context.