Real Estate Q&A: What is Earnest Money?
The seller asks the buyer for Earnest Money to demonstrate a serious intent to purchase the property. Earnest Money is typically 1% of the purchase price, however in homes priced over $500,000 Earnest Money could be as much as 2-3% of the purchase price.
Earnest Money compensates the seller if the buyer is in default of the contract, or if the buyer walks away from the purchase of the property.
As long as the buyer acts in good faith and works within the deadlines of the contract, the earnest money is protected and can be returned to the buyer if the deal cannot move forward. The Earnest Money will also be treated as a credit to the buyers’ down payment or closing costs upon purchase of the property.
The Contract to Buy and Sell Real Estate (in Colorado) specifies how the Earnest Money will be treated as part of the Real Estate transaction.
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