Questions: [Question #10 of 20 A contract for the sale of a home has been negotiated between a seller and a buyer. The earnest money deposit put down by the buyer is which of the following? A. A transfer of title to the property B. A financial instrument to cancel the contract C. An instrument for a valid contract D. A requirement by law of the sales price]

[Question #10 of 20 A contract for the sale of a home has been negotiated between a seller and a buyer. The earnest money deposit put down by the buyer is which of the following? A. A transfer of title to the property B. A financial instrument to cancel the contract C. An instrument for a valid contract D. A requirement by law of the sales price]
Transcript text: [Question #10 of 20 A contract for the sale of a home has been negotiated between a seller and a buyer. The earnest money deposit put down by the buyer is which of the following? A. A transfer of title to the property B. A financial instrument to cancel the contract C. An instrument for a valid contract D. A requirement by law of the sales price]
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Solution

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Answer

The answer is C. An instrument for a valid contract

Explanation
Option A: A transfer of title to the property

This option is incorrect. The earnest money deposit is not a transfer of title. The title to the property is transferred at closing when the sale is finalized, not when the earnest money is deposited.

Option B: A financial instrument to cancel the contract

This option is incorrect. The earnest money deposit is not used to cancel the contract. Instead, it serves as a good faith deposit to show the buyer's commitment to the purchase. If the buyer defaults, the seller may keep the earnest money as compensation.

Option C: An instrument for a valid contract

This option is correct. The earnest money deposit is often considered an instrument for a valid contract because it demonstrates the buyer's serious intent to purchase the property and provides the seller with assurance that the buyer is committed to the transaction.

Option D: A requirement by law of the sales price

This option is incorrect. The earnest money deposit is not a legal requirement of the sales price. While it is a common practice in real estate transactions, the amount and necessity of an earnest money deposit can vary and are typically negotiated between the buyer and seller.

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