Understanding Earnest Money and How to Protect It

When you go under contract on a home, one of the first things that happens is you wire earnest money — a deposit that signals to the seller you're serious. For most buyers, it's the largest check they've ever written. And in Colorado, the rules around when you get it back (and when you don't) are governed by hard contract deadlines that come up fast.

Here's what earnest money actually is, how much to put down in the Denver market, and where buyers most often get tripped up.

What Earnest Money Is

Earnest money is a good-faith deposit you make when your offer is accepted. It's typically held by the title company (sometimes the listing brokerage) in a separate escrow account. It is not an additional cost on top of your purchase — at closing, it's credited toward your down payment and closing costs. If the deal falls apart, whether you get it back depends on why and when.

In Colorado, earnest money is not a deposit you make to the seller. The seller can't spend it, and they can't unilaterally keep it. It only changes hands if both parties agree, or in rare cases through a court order or specific contract default.

How Much to Offer in Denver

There's no legal minimum, but in the Denver metro 1% of the purchase price is the floor and 2–3% is increasingly the norm in competitive situations. On a $650,000 home, that's $6,500 to $19,500 of your money tied up in escrow within a few days of going under contract.

More earnest money signals stronger commitment, which can make a difference in multiple-offer scenarios. But there's a catch — the more you put down, the more you have at risk if you miss a deadline. We generally recommend buyers offer enough to be competitive without making themselves uncomfortable, and to never put down more than they can afford to lose in a worst case.

How to Get It Back: Use Your Contingencies

The Colorado Real Estate Commission's standard buy-sell contract gives buyers several built-in protection points where they can terminate and get their earnest money back. The big ones:

**Inspection Objection / Resolution Deadlines.** This is the most common exit. If the inspection turns up issues you can't get resolved, you can terminate before the inspection resolution deadline and your earnest money is returned. Miss the deadline, and you've waived your inspection objection rights.

**Loan Objection Deadline.** If you can't get acceptable financing terms, you can terminate by this date. After this deadline, financing is no longer a free out — if your loan falls apart later, you may forfeit your earnest money.

**Appraisal Deadline.** If the home appraises below contract price and the seller won't reduce the price or you can't cover the gap, you can terminate.

**Title Objection Deadline.** If the title work turns up something unacceptable (encumbrances, easements, liens), you can object and potentially terminate.

**Survey, HOA documents, ILC.** Each of these has its own objection deadline. Buyers regularly forget these exist.

Every single one of these is a hard date written into your contract. Miss it by a day, and you've waived that protection.

Where Buyers Lose Their Earnest Money

We've seen earnest money disputes go badly for buyers in a few predictable ways:

**Cold feet without a contingency.** You decide you don't love the house, or you find another one you like better, after your inspection objection deadline has passed. There's no contract right to walk for that reason. The seller can demand the earnest money, and they're often within their rights to receive it.

**Financing falls through after the loan deadline.** You assumed your pre-approval was a guarantee, but something changed — you bought a car, your hours got cut, the lender re-pulled credit and the numbers no longer work. If this happens after the loan objection deadline, your earnest money is at risk.

**Missing a deadline by hours.** Colorado's deadlines are at 11:59 p.m. on the date listed unless otherwise specified. Send your inspection objection at 12:03 a.m. the next day and it's late. Title companies and listing agents do not give grace periods.

**Verbal agreements that aren't in writing.** "The seller said they'd extend" doesn't count. If a deadline gets pushed, it has to be documented through an amendment signed by both parties.

How to Protect Yourself

Read your contract. Most buyers sign 30+ pages of contract documents and never read them. At minimum, find the deadlines page (the "Dates and Deadlines" table) and put every single date into your calendar with two-day reminders.

Don't make any major financial moves between contract and closing. No new credit cards, no car loans, no large deposits or transfers, no job changes if you can avoid it. Your lender will re-verify everything before closing, and any change can blow up your financing.

Communicate constantly with your agent and lender. If something feels off — an inspection finding, a slow appraisal, a lender asking for documents you don't have — tell your agent immediately. Most earnest money problems are deadline problems, and most deadline problems are solvable if caught early.

Use a reputable title company for escrow. The earnest money should be held by a neutral third party, not the seller's agent's brokerage operating account. In Colorado this is standard, but verify the wire instructions go to a licensed title company.

Wire Fraud Warning

While we're on the topic — wire fraud is the single biggest financial risk in a real estate transaction. Criminals impersonate title companies and email fake wire instructions to buyers. Always call the title company at a number you found independently (not from an email) before wiring earnest money or closing funds. Verify the routing number and account number verbally. If the wire instructions arrive by email and look slightly different from a previous version, assume it's fraud until proven otherwise.

The Bottom Line

Earnest money is a serious commitment — but in Colorado, it comes with real protections built into the contract. Use your contingencies, hit your deadlines, and don't make any financial waves between offer and closing. If you do those three things, your earnest money stays your money until it gets credited back to you at the closing table.