Earnest money deposit is best described as:

• A. A separate loan
• B. A good faith deposit that forms part of the consideration
• C. A fee for appraisal
• D. A guarantee for mortgage

Answer: (B)

Earnest money is a buyer’s good-faith deposit given when a purchase agreement is signed. It signals serious intent to buy and is held in escrow until closing. This money then becomes part of the purchase price, so it forms part of the consideration the buyer is providing toward the property. It’s not a separate loan, a fee for appraisal, or a mortgage guarantee. The funds reduce the amount the buyer needs to bring to closing and are applied to the purchase price if the deal goes through; if the buyer defaults in a contract that allows it, the deposit can be forfeited, whereas if the seller breaches, it’s typically returned.