What is typically included in an "initial deposit" during a real estate transaction?

In a real estate transaction, an "initial deposit" is commonly comprised of a small percentage of the purchase price. This deposit, often referred to as earnest money, serves as a demonstration of the buyer's serious intent to purchase the property and is submitted when the purchase agreement is signed. The earnest money helps to assure the seller that the buyer is committed to proceeding with the transaction.

If the sale goes through, this deposit is typically applied to the closing costs or down payment, which contributes to the overall purchase price. The amount of the deposit can vary, but it usually ranges from 1% to 5% of the property's purchase price, thus making it a relatively modest upfront commitment for the buyer.

In contrast, options such as a complete payment for the property, monthly payments for the first year, or inspection costs do not align with the purpose and structure of an initial deposit in a real estate transaction.