In a real estate transaction, what is a binder deposit?

In a real estate transaction, a binder deposit, commonly referred to as earnest money, serves as a demonstration of the buyer's good faith when making an offer on a property. This deposit shows the seller that the buyer is serious about purchasing the property, and it is typically held by the broker or the title company until the transaction is finalized.

When the transaction closes, the binder deposit is usually credited toward the buyer's closing costs or down payment. If the buyer ultimately does not proceed with the purchase, the seller may have rights to retain the binder deposit as compensation for the time the property was taken off the market. Thus, in the context of real estate transactions, the binder deposit specifically benefits the buyer by showing commitment and providing leverage in negotiations, making it vital for the buyer's position in the deal.

The other options do not accurately reflect the purpose or function of a binder deposit in a real estate transaction context.