In real estate transactions, what is earnest money primarily used for?

Earnest money is primarily used to secure a buyer's offer and demonstrate good faith. When a potential buyer makes an offer on property, they provide earnest money as part of the agreement, indicating their serious intent to follow through with the purchase. This deposit assures the seller that the buyer is committed to completing the transaction, which can often help to make the offer more attractive in a competitive market.

The earnest money is typically held in an escrow account until closing, at which point it may be applied toward the purchase price or closing costs. This mechanism helps protect both parties; it provides the seller with some assurance that the buyer is legitimate, while giving the buyer a degree of security that their offer will be handled seriously.

In contrast, the other options refer to funds with different purposes: closing costs are typically paid at the time of settlement and cover various fees associated with executing the transaction, real estate taxes are an ongoing obligation and are not linked to the earnest money deposit, and an agent's commission is usually paid by the seller at closing as part of the transaction costs. Thus, the correct choice emphasizes the primary role of earnest money in the initial stages of a real estate offer.