In real estate, what does a buyer typically provide as "earnest money"?

In real estate transactions, earnest money serves as a show of good faith from the buyer to the seller. Typically, this earnest money is a percentage of the sale price and is paid up front when the buyer submits an offer on a property. Its primary purpose is to indicate the buyer's serious intent to follow through with the purchase and to compensate the seller for taking their property off the market while the transaction is pending.

If the transaction successfully closes, the earnest money is usually applied toward the buyer's down payment or closing costs. However, if the buyer defaults on the purchase agreement without a legitimate reason, the earnest money may be forfeited to the seller as compensation for the withdrawn offer. This practice underscores the significance of earnest money in establishing trust and commitment in real estate dealings.

Other responses detail aspects of real estate transactions that do not align with the function or definition of earnest money, such as payment for inspections, monthly rent, or flat fees, highlighting that these do not pertain to the assurances or commitments typically reflected in earnest money.