What is the primary purpose of an earnest money deposit?

The primary purpose of an earnest money deposit is to demonstrate the buyer's serious intent to purchase the property and to secure the contract. When a buyer makes an earnest money deposit, they are essentially showing the seller that they are committed to going through with the purchase. This deposit acts as a good faith gesture, assuring the seller that the buyer is serious about their offer and is not simply making a casual inquiry.

In many real estate transactions, the earnest money is held in an escrow account until the sale is finalized, serving as a form of protection for the seller. If the buyer backs out of the deal without a valid reason specified in the contract, the seller may have the right to keep the earnest money as compensation for taking the property off the market. Thus, the earnest money deposit plays a crucial role in the real estate transaction process by fostering trust between the buyer and seller and establishing a legal commitment to the contract.