New York Real Estate Salesperson Exam 2025 - Complete Practice Guide

Earnest money is best described as a deposit reflecting the buyer's commitment to purchase. This money is typically submitted alongside an offer to demonstrate the seriousness of the buyer's intent to move forward with the transaction. By providing earnest money, the buyer assures the seller that they are committed to completing the purchase, which can make the offer more appealing in a competitive market.

The earnest money deposit is usually held in an escrow account until the sale is finalized, and it may be applied to the down payment or closing costs. If the transaction does not proceed due to contingencies outlined in the purchase agreement, the buyer may be entitled to a refund of the earnest money. Should the buyer default on the agreement without a valid reason, the seller may keep the earnest money as compensation for their time and potential loss.

In contrast, the other options do not accurately capture the nature of earnest money. For instance, it is not an optional fee paid by a seller, does not relate to property insurance, and is not a regular payment made after purchasing a home. These distinctions underscore the importance of understanding the purpose and function of earnest money within real estate transactions.