Washington State Real Estate Practice Exam

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Prepare for the Washington State Real Estate Exam with detailed flashcards and multiple choice questions, each with hints and explanations. Master the material and ace your exam!

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What is the purpose of earnest money in a real estate transaction?

To cover closing costs
To demonstrate the buyer's good faith and commitment
To pay the real estate agent's commission
To ensure the property is taken off the market

The correct answer is: To demonstrate the buyer's good faith and commitment

Earnest money serves as a demonstration of the buyer's good faith and commitment to the purchase of a property. When a buyer submits earnest money along with an offer, it indicates their serious intention to proceed with the transaction. This upfront payment is a form of security for the seller, showing that the buyer is sincere and capable of completing the purchase. It's a way to build trust between the parties involved, as the seller is reassured that the buyer is committed to seeing the deal through. The earnest money is typically held in an escrow account until the transaction closes, at which point it can be applied to the buyer’s down payment or closing costs. This reinforces the idea that the earnest money investment reflects the buyer's dedication, rather than just being a casual offer.