Tennessee Realtor State Practice Exam

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Prepare for the Tennessee Realtor State Exam with questions and explanations designed to help you succeed. Master the principles and regulations of real estate in Tennessee. Ace your exam with confidence!

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What is the primary purpose of earnest money in a real estate transaction?

To pay for closing costs
To guarantee the buyer's financial commitment
To fund property improvements
To serve as a commission for the broker

The correct answer is: To guarantee the buyer's financial commitment

The primary purpose of earnest money in a real estate transaction is to guarantee the buyer's financial commitment. This initial deposit demonstrates to the seller that the buyer is serious about their offer and intends to follow through with the purchase. It serves as a show of good faith and can help strengthen the buyer's position in negotiations. If the agreement reaches closing, the earnest money is typically applied towards the buyer’s down payment or closing costs. The other options, while related to aspects of the transaction, do not accurately reflect the primary function of earnest money. For instance, earnest money is not used directly for closing costs, funding property improvements, or serving as a commission for the broker. These elements are distinct parts of a real estate transaction and do not capture the essential role that earnest money plays in establishing buyer intent and commitment.