What is defined as "earnest money" in real estate?

Earnest money is a deposit made by a buyer to demonstrate serious intent to purchase a property. This practice serves as a sign of good faith, indicating to the seller that the buyer is committed to completing the transaction. It helps to secure the purchase agreement and can provide the seller with some financial security while the transaction is being finalized.

Typically, earnest money is held in an escrow account and is applied toward the down payment or closing costs if the transaction proceeds successfully. If the buyer fails to follow through on the purchase without a valid reason as defined in the contract, the seller may be entitled to keep the earnest money as compensation for the time and resources spent on the transaction.

The other options refer to various aspects of real estate transactions but do not align with the concept of earnest money. A fee paid for property appraisal relates to assessing the value of a property, a fee to reserve a property typically involves a different kind of hold or deposit that is not necessarily linked to the buyer's commitment, and a tax on property purchases is a financial obligation imposed by the government rather than a demonstration of buyer intent.