What Is Earnest Money in Colorado?
Earnest money is one of the most misunderstood parts of buying a home. Here's how it works in Colorado, when you can get it back, and when you can't.
Earnest money is a deposit you make shortly after your offer is accepted — it signals to the seller that you're serious, and it's part of how the contract system in Colorado is structured. Most buyers know it exists but don't fully understand when it's at risk. This guide explains it clearly.
What Is Earnest Money?
Earnest money (also called an Earnest Money Deposit, or EMD) is a sum of money you put into escrow — held by a neutral third party, typically the title company — after your offer is accepted. It's not a separate expense. The earnest money is applied toward your down payment or closing costs at closing.
Think of it as a demonstration of intent. You're putting real money on the line to show the seller you're committed to seeing the transaction through.
How Much Is Typical in Denver?
Colorado doesn't have a fixed requirement. The amount is negotiable, but conventions in Denver:
- Standard: 1–2% of the purchase price
- Competitive situations: 2–3% (used to strengthen an offer when competing with other buyers)
- Minimum to be credible: Generally $5,000–$10,000 on homes priced above $400K
On a $700,000 home, 1% = $7,000. On the same home, 2% = $14,000.
Higher earnest money signals stronger commitment and can tip the scales in a close competition between similar offers.
When Is Earnest Money Due?
In Colorado's standard contract (the Colorado Real Estate Commission Contract to Buy and Sell), earnest money is typically due within 1–3 business days of acceptance. Your offer will specify the exact timeframe.
This means you need the funds liquid and accessible before you write an offer. You cannot offer $15,000 in earnest money if that money is tied up in a CD that takes 10 days to access.
What Happens to the Earnest Money?
It goes into a neutral escrow account, typically held by the title company. Neither you nor the seller can access it during the transaction.
At closing: The earnest money is applied toward your down payment and closing costs. It's not an extra cost.
If the deal falls through: This is where it gets important.
When Do You Get Your Earnest Money Back?
Colorado's contract structure includes several contingency periods during which you can walk away and recover your earnest money:
Inspection Period (Title Review / Inspection Objection Deadline)
If you terminate the contract during the inspection period for any reason — or after submitting an Inspection Notice that the seller won't resolve to your satisfaction — you get your earnest money back.
Standard inspection period: 10 days from acceptance.
Loan Objection Deadline
If your financing falls through through no fault of your own — the lender won't approve the loan — you can typically terminate and recover your earnest money within the loan objection period.
Appraisal Objection Deadline
If the home appraises below the contract price and the parties can't agree on how to handle the gap, the buyer can terminate and recover earnest money during the appraisal objection period.
Title Objection Deadline
If title issues are discovered that can't be resolved, the buyer can terminate and recover.
When Do You Lose Earnest Money?
You lose the earnest money if you default — meaning you back out of the deal without a contractual right to do so. Common scenarios:
- Backing out after all contingency periods have expired with no valid contractual basis
- Missing critical deadlines (causing the contract to lapse)
- Simply deciding you don't want the home anymore after contingencies are waived
If you lose the earnest money, it typically goes to the seller as liquidated damages. In most Colorado contracts, this is the seller's sole remedy — they don't get to sue you for additional damages on top of the earnest money.
Practical Advice for Buyers
Know your deadlines. The Colorado contract has a series of dates — inspection deadlines, loan deadlines, appraisal deadlines, title deadlines and closing deadline. Missing them has consequences.
As your buyer's agent, I'll stay on top of these deadlines and keep you informed. At the beginning of the transaction I'll send you an eCalendar to keep track. At the start of each week in the transaction I'll send you our key deadlines that need attention.
Don't waive contingencies without understanding the risk. In competitive markets, some buyers waive inspection or appraisal contingencies to win. When you do that, your earnest money is more at risk if things go wrong.
Keep the funds accessible. Have the earnest money liquid before you start making offers.
Ask questions before you're in the middle of a situation. Understanding how earnest money works before you're in a high-pressure offer scenario leads to better decisions.
About the Author
Scot Conti
Broker Associate at West + Main Homes. Berkeley resident, former architectural photographer, and your guide to Denver Metro real estate.
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