What are "earnest money" deposits?

Earnest money deposits are initial funds that buyers provide when making an offer on a property, serving as a demonstration of their serious intent to complete the purchase. This deposit indicates to the seller that the buyer is committed and reduces the risk of the seller taking the property off the market for an uncommitted buyer. It is often held in escrow until the transaction is finalized, at which point it may be applied toward the buyer's down payment or closing costs, or returned to the buyer if the sale does not proceed for legitimate reasons outlined in the purchase agreement.

The other options do not accurately describe earnest money deposits. Fees paid to real estate agents pertain to the commissions for their services, while insurance premiums relate to protecting the buyer or lender's interests during and after the purchase process. Taxes are obligations associated with property ownership and are not relevant to the intent behind earnest money. Hence, the focus on the earnest money function in signaling a buyer's commitment makes the first choice the correct and most relevant answer.