North Dakota Real Estate Practice Exam 2026 – Comprehensive All-in-One Guide for Exam Success!

In a real estate transaction, earnest money serves as a demonstration of the buyer's serious intent to purchase the property. It is typically held in escrow until the closing of the sale or until the transaction falls through. If a buyer backs out of the sale without cause, the earnest money is typically forfeited to the seller. This is because the seller has relied on the buyer's initial commitment, and the forfeiture serves as compensation for the seller's time and potential loss of other buyers during the period the property was under contract.

In contrast, disagreements with the asking price, failure to complete inspections, or finding a better property do not automatically result in the forfeiture of earnest money. Buyers can often negotiate the asking price, have contingencies in place related to inspections, or choose to withdraw from a contract without penalty when there are specific clauses allowing them to do so. Therefore, backing out without an acceptable reason or contingency is the scenario where the earnest money is at risk of being forfeited.