What does an earnest money deposit signify in a real estate transaction?

An earnest money deposit signifies the buyer's commitment to purchase the property. This deposit is offered by the buyer to show good faith and seriousness in the transaction, indicating their intent to follow through with the purchase agreement. By providing this deposit, the buyer demonstrates financial commitment, which can strengthen their position in negotiating with the seller.

In real estate transactions, earnest money is typically held in an escrow account until the sale is finalized. If the transaction goes smoothly and the buyer successfully closes the deal, the earnest money is usually applied toward the down payment or closing costs. However, if the buyer fails to comply with the terms of the contract without a valid reason, they may forfeit the earnest money to the seller as a form of compensation for taking the property off the market.

The other options do not pertain to what an earnest money deposit represents. A reduction in price is a negotiation aspect, mortgage approval is a financial process unrelated to the earnest money itself, and clear ownership assurance by the title company is a different part of the transaction, entirely focused on property ownership legitimacy, not buyer commitment.