Contracts
What is the purpose of an earnest money deposit in a real estate transaction?
ATo pay the broker's commission
BTo demonstrate the buyer's good faith and provide damages to the seller if the buyer defaults✓ Correct
CTo pay for the property inspection
DTo cover the title insurance premium
Explanation
Earnest money demonstrates the buyer's good faith intent and is typically applied to the purchase price at closing. If the buyer defaults without valid cause, the seller may retain the earnest money as liquidated damages.
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