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What Is Earnest Money Deposit? 🤑 💵 Learn from a Colorado Springs Realtor®

What is earnest money deposit?

What is earnest money? So glad you asked! In this video, I share what earnest money is as well as how you can lose your earnest money in a transaction if you're the buyer, or how you may be compensated as a seller for earnest money if a buyer defaults on the contract to buy and sell real estate. 😉

Earnest money is a part of most contracts and a huge part of buying homes in Colorado Springs. Learn more about earnest money and watch this video today or keep reading!

So what is earnest money? The purpose of the earnest money is to prove that you are serious about buying this home. You have the cash to prove it and you do have the money to be able to buy this home.

How to pay earnest money:

I’m not sure about other states as I’m only licensed in Colorado, but the amount is in your contract. If you’re not sure, double check with your real estate agent. You will be depositing that earnest money check typically to the title company. Make sure you know what payment terms are accepted.

How much earnest money do I need?

Usually, earnest money is one percent of the purchase price. If the house is being sold for $350,000 to $365000, then usually it will be about $3,500. You will write a cashier's check, or a money order, or a personal check.

Who holds the earnest money?

Once you drop off your check at the title company it does get cashed and placed into an escrow account so you're not going to see that money. Make sure that you really do have that money ready and available because it will get cashed usually that day or the following day. Sometimes a brokerage firm will hold earnest money as well. Refer to your agent or contract if you’re not sure who to write it to or where to drop it off.

Does earnest money go towards down payment or closing costs?

That escrow money is usually going to go towards the purchase of the home or the closing costs. Everyone has closing costs. It's very rare that you're going to get that earnest money back when you are at closing, especially in today’s market.

Do you lose earnest money if financing falls through?

In Colorado, it is not likely that you will lose your earnest money if financing falls through. There is a new loan termination deadline that protects buyers in most cases.

Now, it does get a little tricky otherwise. If you were to buy a house and you decided to back out for any other reason not listed in the contract, whether it's an inspection objection and the report confirmed the foundation was cracked or something like that, and you don't want to go through with the purchase (because obviously you don't want to be stuck with a home that has a bad foundation) you can terminate the contract based on the inspection objection.

However, if you were going to terminate a contract because you found a better house that you liked and you wanted to write a contract on that one instead, you might lose your earnest money. That $3,500 that you put down on the house -- you are at risk of losing because the seller may have taken the property off of the market so that they can sell it to you. Therefore, the earnest money is used to compensate the seller for you not holding your end of the bargain. This is a legal contract. You can't just not do it because you don't feel like it. So, in that case you can lose your earnest money.

That is pretty much earnest money deposit in a nutshell! If you have any questions, please feel free to reach out to me. I post new and relevant real estate tips every Wednesday. If you subscribe, you’ll get those notifications each time I upload something new! See you next week on Wednesday!


Colorado Springs, CO REALTOR®


You can learn more about the buying process in this video: ↠ Click to Watch

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