Tennessee Realtor State Practice Exam

What is the term used for the initial deposit that shows a buyer's serious intent to purchase a property?

1. Earnest money

2. Option fee

3. Closing costs

4. Down payment

The correct answer is: Earnest money

The term used for the initial deposit that demonstrates a buyer's serious intent to purchase a property is earnest money. This deposit is typically provided at the beginning of the transaction and serves as a good faith gesture to the seller, indicating that the buyer is committed to following through with the purchase. It helps to solidify the buyer's position in the negotiation process and can be applied toward the purchase price or closing costs later on. In contrast, the option fee refers to a payment made for the right to purchase a property at a later date, which is distinct from the initial intent represented by earnest money. Closing costs are the expenses incurred at the finalization of a real estate transaction, typically paid at closing, and do not pertain to initial intent. The down payment is the portion of the purchase price that the buyer pays upfront but comes into play after the earnest money stage, often reflecting a more significant financial commitment to the property itself.