What term refers to the deposit made by a buyer to show good faith in a transaction?

The deposit made by a buyer to show good faith in a transaction is referred to as earnest money. This term is widely recognized in real estate transactions as it represents the buyer's commitment to proceeding with the purchase. By providing earnest money, the buyer indicates serious intent and can often secure more favorable terms during negotiations.

Earnest money serves several important functions in a real estate deal. Firstly, it reassures the seller that the buyer is dedicated to completing the purchase and not looking for a frivolous transaction. If the transaction goes as planned, the earnest money is typically applied toward the purchase price at closing. If the buyer backs out of the agreement without a valid reason as stipulated in the purchase contract, the seller may keep the earnest money as compensation for losing potential buyers and for the time the property was off the market.

In contrast, other terms do not accurately represent this function. A binder deposit, while similar, typically refers to a specific agreement between parties which may not be widespread in usage. Security deposits are commonly associated with rentals and represent a tenant's liability for damage, while escrow funds refer to money held in trust until specific conditions are met, which is not limited to good faith but may encompass a variety of financial transactions.

Therefore, the correct term