Earnest Money Colorado

“E” is for Earnest Money Deposit

In Buyers by Doug Phelps

This post is part of an ongoing series, “ABC’s of Real Estate.” Stay tuned for more posts as I run through the a-z of real estate and provide helpful tips for home buyers and sellers alike.


If you’ve found your ideal home and are ready to make an offer, you’ll want to include an earnest money deposit. Earnest money signals to the seller that you’re a serious buyer. But, what exactly is an earnest money deposit and how does it work?

Find out below!


What is earnest money?


Earnest money is a deposit you pay in addition to your down payment. Think of earnest money as a good-faith offering that shows the seller you are serious about buying their home. Earnest money can also provide you an edge when you make an offer and can even buy you a little more time to secure financing.


You’ll normally pay your earnest money deposit within a few days after your contract is executed. Keep in mind that this check will be cashed within 24 to 48 hours of being provided, so make sure the money is in your account.


Do I have to make an earnest money deposit?


The short answer is – likely. There is a legal requirement to make an earnest money deposit in a Colorado Buy/Sell Contract. Further, in the Denver-Metro area’s competitive housing market, not making at least a full earnest money deposit could make it very difficult for you to secure a home. After all, money talks!


How much do I put down for my earnest money deposit?


An earnest money deposit is typically 1-2% of the purchase price. Other factors might influence this. For example, new construction builder homes generally require a higher earnest money deposit.


Your earnest money deposit is part of a negotiated deal. So, you may offer more or less money based on particular circumstances, as well as other items in your offer. Your Realtor can help you determine the best course of action for your earnest money deposit.


How do I get my earnest money back?


If the sale of the home goes through, your earnest money deposit will be put toward your down payment upon closing.


If the seller properly terminates the deal, you will receive your earnest money back in full. Similarly, if the sale of the home does not go through because of a failed contingency in your contract, such as major issues with your inspection that can’t be resolved, you are also likely to get your full earnest deposit back so long as you terminate timely according to contract dates and deadlines.

Now, if you as the buyer decide not to go through with the purchase for reasons not outlined in the contract agreement, you will most likely lose your earnest money deposit. This is a seller’s only remedy from a broken contract. So, think long and hard about getting cold feet.


Any questions regarding Earnest Money or any general queries regarding Real Estate get in touch with me.

Subscribe To Doug's Blog