Which statement is true regarding earnest money deposits?

Which statement is true regarding earnest money deposits?

• A. Earnest money can only be in cash
• B. Earnest money is typically refunded to the buyer after a sale
• C. Earnest money is a show of good faith by the buyer
• D. Earnest money is kept by the seller

Answer: (C)

The correct statement about earnest money deposits is that it is a show of good faith by the buyer. Earnest money serves as a demonstration to the seller that the buyer is serious about their intention to purchase the property. By providing this deposit, the buyer indicates their commitment to moving forward with the transaction, which can help build trust in the negotiation process. In real estate transactions, earnest money is generally applied to the purchase price if the sale proceeds to closing. If the transaction does not go through, depending on the terms outlined in the purchase agreement, the earnest money may be either refunded to the buyer or forfeited, which underscores the importance of the terms understood by both parties. While it might seem that cash is a common form for earnest money, it can also be made in the form of a check, wire transfer, or other negotiable items, making the first statement about only cash incorrect. Regarding the refund process, earnest money isn’t always refunded to the buyer after a sale, especially if the buyer defaults without appropriate cause, which negates the second statement's validity. Lastly, earnest money is typically not kept by the seller outright; instead, it is usually held in a trust account or by a neutral third party until the transaction is completed or

The correct statement about earnest money deposits is that it is a show of good faith by the buyer. Earnest money serves as a demonstration to the seller that the buyer is serious about their intention to purchase the property. By providing this deposit, the buyer indicates their commitment to moving forward with the transaction, which can help build trust in the negotiation process.

In real estate transactions, earnest money is generally applied to the purchase price if the sale proceeds to closing. If the transaction does not go through, depending on the terms outlined in the purchase agreement, the earnest money may be either refunded to the buyer or forfeited, which underscores the importance of the terms understood by both parties.

While it might seem that cash is a common form for earnest money, it can also be made in the form of a check, wire transfer, or other negotiable items, making the first statement about only cash incorrect. Regarding the refund process, earnest money isn’t always refunded to the buyer after a sale, especially if the buyer defaults without appropriate cause, which negates the second statement's validity. Lastly, earnest money is typically not kept by the seller outright; instead, it is usually held in a trust account or by a neutral third party until the transaction is completed or