Earnest money is collateral.

Earnest money is typically around 2 percent of the list price of a property (though this number can vary and is negotiable), is usually due 48 hours after a contract is executed and is held by the title company as collateral for the seller in case the buyer walks away from the deal.

Don’t worry, this is not as scary as it sounds at first blush.

In Colorado the real estate contract is extremely buyer friendly. There are ten possible standard contingencies in the contract. The buyer can get out of the contract at each contingency if something is not satisfactory with earnest money in tact as long as the buyer/buyer’s agent gives written notice to the seller before the corresponding contingency objection deadline. 

Let’s use a real example from a deal I had a few weeks ago: 

My buyer was under contract for a home with solar panels attached to the roof. Everything was going smoothly until we received the due diligence documents from the seller/seller’s agent. In those documents there was a loan document stating that about $17,000 was owed on a loan for the solar panels. And the person who took out that said loan is now serving 15 years in jail for embezzling money from the person who was selling the house. Yikes!

If the buyer did not want to take over that loan or wanted no part in this messy situation, we could have given written notice to the seller/seller’s agent that the buyer wanted to terminate the contract because of the due diligence documents. 

As long as we gave that notice before the due diligence objection deadline the buyer’s earnest money would have been returned to the buyer. This is true of all the contingencies in the contract. 

If a deal does close the earnest money is counted towards the buyer’s downpayment.

Have a specific buying questions, reach out – no stings attached!

Also, check out another one of our blog posts written for first time home buyers.

Good Good Realty LogoGood Good is a Boulder area real estate agency. We specialize in helping good people find the perfect Boulder home. We’re low pressure but high touch. If you’re looking for someone to guide you through the real estate process in the Boulder area, we may be a good fit. Give us a call if you’d like to chat. We’re always happy to answer any questions you have about the Boulder area or give you a tour. 

Thanks, Katie (Good Good Founder) | 720.415.4914| Katie@goodgoodrealty.com

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