What is the function of an earnest money deposit in a real estate transaction?

The function of an earnest money deposit in a real estate transaction is primarily to demonstrate the buyer’s seriousness about purchasing the property. By providing this deposit—typically a percentage of the purchase price—the buyer shows commitment and intent to follow through with the transaction, which helps to reassure the seller that the buyer is not merely entertaining the thought of purchasing but is genuinely interested in completing the deal. This level of seriousness reflects good faith and can help the seller remove the property from the market, as it indicates that the buyer is ready to engage in the buying process.

While there are other aspects involved in a real estate transaction, such as covering inspection costs or negotiating the purchase price, these are not the primary purpose of an earnest money deposit. It is also distinct from establishing a sales contract, as the deposit itself does not create the legal framework of the contract but rather supports the buyer's position within the existing agreement.