What is a legal term that refers to compensatory payment made to secure a deal in real estate?

What is a legal term that refers to compensatory payment made to secure a deal in real estate?

• A. Earnest Money
• B. Option Fee
• C. Good Faith Payment
• D. Booking Fee

Answer: (A)

The correct term referring to a compensatory payment made to secure a deal in real estate is indeed earnest money. Earnest money is a deposit made by a buyer to demonstrate their serious intent to proceed with the purchase of a property. This payment is typically made at the time an offer is made and is held in escrow until closing. If the transaction goes through, the earnest money is applied to the purchase price. This practice helps both the seller and buyer, as it provides the seller with assurance that the buyer is committed to the deal, while also protecting the buyer's interests during the negotiation process. If the sales contract does not go through due to contingencies defined within it, the earnest money may be refundable, depending on the terms agreed upon. In contrast, the other terms listed have different meanings. An option fee is a payment made for the exclusive right to purchase a property for a defined time but does not serve the same function as earnest money. A good faith payment is somewhat similar but is less commonly used in real estate transactions specifically compared to earnest money. A booking fee typically refers to a minor payment that might be associated with reserving a property, often in rental situations, rather than as a significant commitment in a purchase agreement.

The correct term referring to a compensatory payment made to secure a deal in real estate is indeed earnest money. Earnest money is a deposit made by a buyer to demonstrate their serious intent to proceed with the purchase of a property. This payment is typically made at the time an offer is made and is held in escrow until closing. If the transaction goes through, the earnest money is applied to the purchase price.

This practice helps both the seller and buyer, as it provides the seller with assurance that the buyer is committed to the deal, while also protecting the buyer's interests during the negotiation process. If the sales contract does not go through due to contingencies defined within it, the earnest money may be refundable, depending on the terms agreed upon.

In contrast, the other terms listed have different meanings. An option fee is a payment made for the exclusive right to purchase a property for a defined time but does not serve the same function as earnest money. A good faith payment is somewhat similar but is less commonly used in real estate transactions specifically compared to earnest money. A booking fee typically refers to a minor payment that might be associated with reserving a property, often in rental situations, rather than as a significant commitment in a purchase agreement.