What is earnest money? Earnest money is essentially a good faith payment which shows the seller that you are serious about buying their home. It's also part of your down payment. So for instance if you pay 5% in earnest money (abbreviated as EM) and your total down payment is 20% then that means you've already paid 5% of your down payment up front. So at closing you'd just pay the remaining 15% of your down payment plus your closing costs.
How much is earnest money? In CO the seller determines how much earnest money they want to charge and it varies depending on the seller's wishes and the price of the property. In general it's usually between $2500 - $15,000. It is due as soon as the purchase contract is signed.
Who holds the earnest money? Usually the earnest money is held by the Title company.
Why do we pay earnest money? Without the requirement of earnest money, a real estate buyer could make offers on many homes, essentially taking them off the market until they decided which one they liked best. Sellers rarely accept offers without the buyers putting down earnest money to show that they are serious and are making the offer in good faith.
Can I get my earnest money back if I cancel the contract? If you cancel the contract, the earnest money is refundable if you cancel based on a contingency in the contract such as inspection issues or your mortgage being denied. If you simply change your mind about buying the home after the earnest money payment is made you typically loose all of your earnest money. That said, if you cancel because your loan was denied, the property burned down, the property didn't appraise or because of another reason where your earnest money was protected in the contract then you'll usually get the full amount of your earnest money back.
Can I refuse to pay earnest money? You can but likely your offer won't be taking seriously then so it's not something we recommend. That said, if you are doing a %0 down payment loan like a Physician's Loan or a VA loan we may be able to negotiate to have you skip paying any earnest money since you aren't putting down any down payment.
If you have additional questions about earnest money just let us know!