Describe "earnest money."

Earnest money serves as a deposit made by a buyer to demonstrate their seriousness and commitment to a real estate offer. This financial commitment typically accompanies an offer to purchase and indicates that the buyer is genuinely interested in the property. By providing earnest money, the buyer signals to the seller that they are ready to proceed towards a final sale, differentiating themselves from other prospective buyers who may not yet have the same level of commitment.

The earnest money is typically held in escrow, and if the transaction proceeds successfully to closing, the amount is usually applied toward the buyer's down payment or closing costs. If the buyer backs out of the deal without a valid reason defined in the contract, they risk losing this deposit, which can serve to protect the seller's interests.

In contrast, the other options describe different aspects related to real estate transactions. A fee paid to the broker pertains to compensation for services provided and does not indicate the buyer's level of commitment. Payment for closing costs relates to the final transaction steps and includes various fees associated with completing the sale. Lastly, a penalty for breaking a contract does not encompass the earnest money's primary function, which is to provide assurance to the seller rather than serve as a punitive measure.