Which of the following best describes the function of earnest money in a real estate transaction?

The function of earnest money in a real estate transaction is to demonstrate the buyer's commitment to purchasing the property. When a buyer offers earnest money, they essentially provide a financial assurance that they are serious about the offer. If the buyer defaults or fails to carry through with the agreement without valid reason, the earnest money can be forfeited to the seller as liquidated damages. This acts as a form of compensation for the seller, who has taken the property off the market based on the buyer's offer.

This role in the transaction helps protect the seller's interests and creates a sense of trust between both parties, as it indicates that the buyer is willing to put their financial stake at risk in order to proceed with the purchase.