What initial payment is made by a buyer to a seller to show intent to fulfill a contract?

What initial payment is made by a buyer to a seller to show intent to fulfill a contract?

• A. Earnest Money
• B. Down Payment
• C. Purchase Agreement Fee
• D. Broker’s Fee

Answer: (A)

The initial payment made by a buyer to a seller to demonstrate a serious intent to fulfill a contract is known as earnest money. This payment is typically part of the transaction process in real estate and serves as a good faith gesture that assures the seller of the buyer's commitment to proceed with the purchase. Earnest money can be viewed as a form of security for the seller; if the transaction successfully closes, this amount is generally applied toward the down payment or closing costs. If the buyer backs out of the agreement without a valid reason (as defined in the contract), the seller may retain the earnest money as compensation for the time and effort spent in the negotiation process. In comparison, the down payment is a separate concept that refers to the larger sum of money that the buyer pays upfront towards the purchase price of the property. This usually occurs at closing rather than being an initial expression of intent. The purchase agreement fee may not be commonly recognized and generally refers to different aspects of the transaction rather than acting as a good faith deposit. The broker’s fee relates to the payment made for the services rendered by real estate agents involved in the transaction, which does not function as an initial payment to secure the agreement between the buyer and seller. Thus, earnest money is

The initial payment made by a buyer to a seller to demonstrate a serious intent to fulfill a contract is known as earnest money. This payment is typically part of the transaction process in real estate and serves as a good faith gesture that assures the seller of the buyer's commitment to proceed with the purchase.

Earnest money can be viewed as a form of security for the seller; if the transaction successfully closes, this amount is generally applied toward the down payment or closing costs. If the buyer backs out of the agreement without a valid reason (as defined in the contract), the seller may retain the earnest money as compensation for the time and effort spent in the negotiation process.

In comparison, the down payment is a separate concept that refers to the larger sum of money that the buyer pays upfront towards the purchase price of the property. This usually occurs at closing rather than being an initial expression of intent. The purchase agreement fee may not be commonly recognized and generally refers to different aspects of the transaction rather than acting as a good faith deposit. The broker’s fee relates to the payment made for the services rendered by real estate agents involved in the transaction, which does not function as an initial payment to secure the agreement between the buyer and seller. Thus, earnest money is