For those who have played in the real estate game, the term earnest money deposit may be old hat. However, for those new to buying a home (or real estate), the phrase may be completely foreign.

“Earnest Money” (or “EM”) is  presented as “valuable consideration”, and is required for a offer Contract to be legal in Colorado.  The deposit shows that the offer Contract presented from the Buyer/s is in good faith and serious for consideration of purchase of the property.

The Contract will dictate who “holds” the earnest money.  “Holding” the earnest money will be held in a designated escrow account, by either the Listing Real Estate Firm, or in many cases, the Title Company selected to close the real estate purchase.  At time of closing, the EM is provided to the Title Company (if held in a Real Estate Company escrow account), or Title will apply the EM amount to the Settlement Statements in the credit column.

In all cases of what entity holds the EM, the Buyer/s will be (or should be) provided an EM receipt.

In the event the purchase does not happen, the purchase Contract determines the conditions under which a) the EM is forfeited, or b) the EM is returned to the Buyer/s.  Conditions for a return of EM to the Buyer/s are determined typically by the events at: a) Inspection (lack of resolution), and/or b) ability for Buyer/s not to obtain a loan.  It is key, whether it is Inspection or Loan Commitment, that the deadlines are met, per Contact, and that the deadline for notification to Seller/s is met.

Typical reasons EM is forfeited to Seller/s:  Deadlines were not met, or Buyer/s determine to walk from property with Inspection resolved, and able to obtain a Loan, but Buyer/s determine that there is no longer a desire for the property.  Inspection covers the “material” aspects of the property, including Megan’s Law, or characteristics of the neighborhood or neighbors.  Also, there is review of the HOA, and perhaps a condition might be an accurate ILC or survey of the property.

Ghosts, a violent event at the property, the bad latent “vibes” of a nasty divorce are not grounds for the cancellation of a Contract and the return of EM.  Afterall (due consideration), the Seller/s have taken the property off the market as an Active listing, waiting for the period of due diligence and to arrive at closing/transfer of property.  Perhaps the Seller/s have a contingent Contract in place for a property they desire, requiring their current property to close.

Cliff Daniels
Broker / Active Properties
ActProp.com
720 434 1418
cliff@actprop.com