Earnest money shows you’re serious
Since "valuable consideration" is required for a real estate contract in Colorado to be legal, typically when an offer to purchase a house is made, you, as the buyer, will also pay an “earnest money” deposit. This deposit shows the seller that you’re serious about the offer to purchase the property.
The amount of earnest money deposit varies based on the type of property being purchased and local market conditions. As your real estate professional, I’ll help you determine the appropriate amount to pay as an earnest money deposit.
The sales contract will dictate who holds the earnest money. Usually the seller’s real estate agent will deposit the earnest money in a trust or escrow account until closing. A newer practice is for the seller's agent to have an agreement with the closing title company hold the earnest money in escrow until the closing, however the seller's agent retains responsibility for those funds. At closing, the earnest money is applied to the purchase price.
In the event the sale doesn’t close, the purchase contract spells out the conditions under which you would or would not forfeit the earnest money. Generally if the seller meets all the terms of the contract, the seller will keep the earnest money. If the seller does not meet the terms of the contract, you, as the buyer, usually receive a total or partial refund of the earnest money.