Final answer:
Earnest money is a deposit made by a buyer to show good faith when making an offer on a home. This security deposit assures the seller of the buyer's intent and is often used in real estate transactions.
Step-by-step explanation:
The payment a buyer might give at the time of an offer to show sincerity is commonly referred to as earnest money. Earnest money is a deposit made to a seller that represents a buyer's good faith to buy a home. The amount of earnest money depends on the market and the home's price, but it often ranges from 1% to 3% of the purchase price. This security deposit assures the seller of the buyer's intent and might be forfeited if the buyer backs out of the deal without a valid reason under the terms of the agreement.
Addressing imperfect information, sellers of goods might provide warranties, user reviews, and detailed product information to reassure potential buyers. Moreover, seekers of loans can reassure banks with credit reports, proof of income, and collateral. Lastly, a seller of labor, in other words a job applicant, can reassure possible employers by providing resumes, references, certificates, and by undergoing interviews to demonstrate competence and credibility.