What is the term for funds given in advance to show committed interest in purchasing a property?

The term that describes funds provided in advance to demonstrate serious intent to buy a property is known as Earnest Money. This monetary amount acts as a sign of good faith from the buyer toward the seller, indicating that the buyer is earnest about their intention to complete the purchase. Earnest money is typically held in an escrow account and serves to protect the seller should the buyer decide to back out of the transaction without a valid reason.

The significance of earnest money in a real estate transaction is that it provides the seller assurance that the buyer is committed, which can be especially important in competitive markets. If the deal proceeds to closing, the earnest money is often applied towards the buyer's down payment or closing costs. However, if the deal falls through due to a contingency that is covered in the purchase agreement, the earnest money may be refunded to the buyer.

In contrast, while a deposit can refer to the initial amount paid for a purchase in various contexts, it does not specifically indicate the commitment to buying real estate. The down payment is the portion of the purchase price that the buyer pays upfront, separate from earnest money. Equity, on the other hand, refers to the ownership value of the property, not an upfront commitment.