Contracts
What is the purpose of earnest money in a purchase agreement?
ATo pay the broker's commission at closing
BTo demonstrate the buyer's good faith and provide liquidated damages if the buyer defaults✓ Correct
CTo pay for the home inspection
DTo fund the buyer's down payment only
Explanation
Earnest money demonstrates the buyer's good faith and seriousness; if the buyer defaults, the seller may retain the earnest money as liquidated damages per the contract terms.
People Also Study
Related Indiana Questions
- A buyer defaults on an Indiana purchase contract and the seller elects to retain the earnest money as liquidated damages. This means:Contracts
- In an Indiana purchase agreement, earnest money is typically held by:Contracts
- Liquidated damages in a real estate contract are:Contracts
- A buyer who defaults on a purchase agreement may face:Contracts
- A buyer in Lafayette makes a $15,000 earnest money deposit on a $450,000 purchase. What percentage of the purchase price is the deposit?Real Estate Math
- A buyer's earnest money is $7,500 on a $250,000 contract. The loan-to-value ratio is 80%. How much additional cash must the buyer bring to closing (before closing costs)?Real Estate Math
Key Terms to Know
Earnest Money
A deposit made by the buyer when submitting a purchase offer, demonstrating serious intent and serving as consideration for the contract.
Purchase AgreementA legally binding contract between a buyer and seller that outlines the terms and conditions of a real estate sale.
ContingencyA condition in a purchase contract that must be satisfied before the sale can proceed to closing.
Option ContractA contract giving the buyer the right, but not the obligation, to purchase a property at a specified price within a specified time period.
Math Concepts
Study This Topic
Practice More Indiana Real Estate Questions
1,500+ questions covering all exam topics. Start free — no signup required.
Take the Free Indiana Quiz →