Ace the Hawaii Pre-Licensing Exam 2025 – Surf Your Way to Real Estate Success!

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What does "earnest money" refer to in a real estate transaction?

A deposit indicating the buyer's good faith

Earnest money refers to a deposit made by a buyer to demonstrate their good faith intention to purchase a property. It serves as a show of commitment to the transaction, assuring the seller that the buyer is serious about proceeding. This money is typically held in an escrow account until closing, where it may be applied toward the down payment or closing costs. If the transaction does not go through due to a contingency outlined in the purchase agreement, the earnest money can be returned to the buyer. If the buyer fails to proceed and no valid reason exists, the seller may be entitled to keep the earnest money.

Other choices do not accurately represent the nature of earnest money. Fees paid to agents, down payments, or loan application charges carry different meanings and processes within the realm of real estate transactions, making them separate from the concept of earnest money.

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A fee paid to the listing agent

A down payment on property purchase

A loan application charge

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