Affiliate Broker Tennessee (TN PSI) National Practice Exam `

In real estate transactions, what does the term 'earnest money' refer to?

1. A deposit to show serious intent to purchase

2. A fee paid to the appraiser

3. Charges for closing costs

4. Funds required for inspection services

The correct answer is: A deposit to show serious intent to purchase

The term 'earnest money' refers specifically to a deposit made by a buyer to demonstrate their serious intent to purchase a property. This money serves as a show of good faith and commitment to the transaction, indicating to the seller that the buyer is genuinely interested in moving forward. It typically is held in an escrow account and may be applied toward the down payment or closing costs if the sale proceeds. The other options discuss financial aspects of real estate transactions but do not accurately describe earnest money. For instance, fees paid to an appraiser are typically separate charges incurred during the property valuation process, while closing costs encompass a range of fees associated with completing a real estate transaction, such as loan origination fees, title insurance, and other administrative expenses. Lastly, funds required for inspection services refer to costs associated with hiring professionals to assess the condition of the property prior to purchase, which is also distinct from the earnest money concept. Thus, option A accurately captures the essence of earnest money within real estate transactions.