What is Earnest Money? Earnest money is a deposit made by a home buyer in a real estate transaction to show their commitment and seriousness towards the purchase of the house. It is typically 1% of the purchase price and is held in an escrow account until the home purchase is closed. In Colorado, the title company will hold the earnest money until it is released.
Earnest money is like a down payment in that it goes towards the buyer’s closing costs at closing, but it is not the same as a down payment. A down payment is a larger sum of money that is paid at closing, while earnest money is paid upfront as a sign of good faith. When the home purchase is complete, the earnest money goes to your closing posts or any feees that the home buyer needs to pay but at closing most home buyers will have additional funds required for the downpayment.
It is important to note that if the buyer backs out of the sale for reasons not covered by the contract, the seller may be entitled to keep the earnest money as compensation for the time and effort put into the transaction. However, if your realtor is paying attention to the dates in the contract, your earnest money should be well protected with the Colorado Real Estate Contract.
In conclusion, earnest money is a way for buyers to show their commitment and seriousness towards a real estate transaction. It can be returned if the sale falls through due to certain contingencies, but may be forfeited if the buyer backs out for reasons not covered in the contract. Again, your realtor should be well aware of the dates in the contract and what needs to be done to protect your earnest money.
Earnest money is just one example of real estate concepts that most first time home buyers haven’t heard before. If you are looking to buy in Northern Colorado, I’d be happy to help you through the entire real estate purchase. Reach out to me through this website to set up a free home buyers consoltation.