I often get the question: What is earnest money for? Does the seller keep that money? 3 things constitute a real estate contract, offer, acceptance and consideration. So the offer is written on an approved Colorado Contract to buy and sell Real Estate and the buyer(s) signs the offer and if the seller(s) accepts the offer or counter offer, you have acceptance. Consideration is the earnest money. The earnest money amount is set by the seller and the seller's agent and locally in our area is usually about 1% of the asking price.
The earnest money is the buyers money they put up to show good faith they are serious about purchasing the house. The money is held in a trust account either in the real estate brokers trust account or the title companies trust account. If the buyer terminates the contract for inspection reasons, low appraisal, title and HOA objections, loan qualification problems, survey issues, home owners insurance, house sale contingency or due diligence issues by the specific deadlines defined in the contract the buyer can terminate the contract and get their earnest money back. If the contract goes to closing then the earnest money is credited to the buyer at closing toward their closing costs, down payment or prepaid closing costs.
If the buyer passes any of the dates outlined above and then backs out of the contract the buyer could be found in default and seller could then claim forfeiture of the buyers earnest money. The seller is planning a move and will spend time and money preparing for that move by feeling safe the buyer is going to go through with the contract because contract dates have passed.
This is one reason it is extremely important that you select an experienced real estate broker that knows what the contract clauses mean and can help you through the details of meeting these important deadlines. In addition it is also extremely important to pick an experienced and known local lender that will not say they can get you a loan and then deny the loan at the last minute, which puts your earnest money at risk. Many lenders operate on volume and don't care about you, or whether or not you lose your earnest money, they are just trying to meet quotas. This is the number one reason earnest money is forfeited.
I have 30 years of experience in the local market, have sold over $100,000,000 in real estate and can recommend the right lender for your situation. Contact me at 719-310-2404 email@example.com