What Is Earnest Money and How Does It Work in Colorado?

Earnest money is a deposit the buyer submits shortly after a purchase contract is accepted. It signals to the seller that the buyer is serious and financially committed to the transaction. In Colorado, earnest money is held by the title company in an escrow account until closing or until the contract is terminated.

How Much Is Typical in Colorado?

There is no required amount, but 1% to 2% of the purchase price is standard in the Highlands Ranch and Denver metro market. On a $700,000 home, that means $7,000 to $14,000 in earnest money. In competitive situations, buyers sometimes increase their deposit to stand out against competing offers.

When Is Earnest Money Due?

The Colorado contract specifies a deadline for earnest money delivery, typically 3 business days after contract acceptance. The funds are wired or delivered directly to the title company. If the buyer misses this deadline, it is a contract default and the seller has grounds to terminate.

What Happens to Earnest Money at Closing?

If the transaction closes successfully, the earnest money is applied toward the buyer's closing costs or down payment. The buyer does not lose it. It simply gets folded into the funds they were already bringing to closing.

When Does a Buyer Get Their Earnest Money Back?

Colorado contracts include several contingencies that allow buyers to terminate and receive their earnest money back. The most common are:

• Inspection objection. If the buyer submits an objection and the parties cannot reach a resolution, the buyer can terminate and recover their deposit.

• Appraisal contingency. If the home appraises below the contract price and no resolution is reached, the buyer can terminate with their earnest money intact.

• Loan denial. If the buyer is denied financing through no fault of their own, they can typically terminate and recover the deposit.

When Can a Seller Keep the Earnest Money?

If a buyer terminates the contract without a contractual basis, meaning they simply change their mind after all contingency periods have expired, the seller has a claim to the earnest money as liquidated damages. This is one reason why earnest money matters: it creates a real financial consequence for a buyer who backs out without cause.

Earnest money disputes are handled through the contract's dispute resolution process, and the title company holds the funds in escrow until the parties agree on how they should be released. Most disputes are resolved without formal legal action.

Kevin Hays | LOGO Real Estate | 303-683-0008 | www.logorealestate.com