Buying or selling a home in Durango comes with a lot of moving parts, and earnest money is one piece that creates real confidence on both sides. You want to make a strong offer or choose a serious buyer without taking on unnecessary risk. When you know how Colorado contracts handle earnest money, you can protect your position and keep your deal on track. In this guide, you will learn what earnest money is, how it works in Colorado, and practical steps to follow in La Plata County. Let’s dive in.
What earnest money is
Earnest money is a good‑faith deposit you pay after a contract is signed to show you are serious about buying. It gives the seller assurance while the property is off the market and under contract. If the sale closes, the deposit is usually credited toward your purchase price and closing costs.
This deposit also motivates both parties to meet deadlines and conditions. It is not an extra fee. It is part of the funds you already planned to bring to closing.
How Colorado contracts handle it
Most Colorado transactions use standard forms from the Colorado Association of REALTORS. These forms include a specific earnest money amount, where the funds will be held, and how the money is applied at closing.
The contract also sets deadlines and contingency rights that control what happens to the deposit if the deal does not close. Buyers should receive a written receipt for any deposit paid, often called an Earnest Money Receipt, showing the amount, date, and account where the funds are held.
Who holds the funds and when to deposit
In Colorado, earnest money is typically held by a neutral title or escrow company, or in a broker’s trust account. Your contract will name the holder. This is important, because escrow agents follow the written contract and their escrow policies when they receive and release funds.
Deposit timing is set in the contract. For example, you might agree to deposit within a few days of contract acceptance. If a buyer misses that deadline, the seller may have remedies under the contract, including the right to cancel. Always deliver on time and keep the receipt.
Most title and escrow companies require “good funds,” which means they accept a cashier’s check or a wire transfer. They will typically provide a written deposit receipt once funds clear.
Contingencies and refunds
Your contingency clauses determine when you can cancel and recover your deposit. Common examples include inspection, title, appraisal, and financing contingencies. If you terminate before your deadline and follow notice rules in the contract, you are generally entitled to a refund.
If you miss a deadline or waive a contingency, then try to cancel later, you may risk forfeiting the deposit. Terminations must usually be made in writing, by the stated deadline, and using the procedures set in the contract. Put every notice in writing and confirm delivery.
Common scenarios
- You terminate during the inspection period following contract procedures. In many cases, your earnest money is refunded.
- You do not obtain financing, and a financing contingency applies. If you terminate within the financing deadline, the deposit is commonly refunded.
- You waive contingencies, then discover a defect and try to cancel later. You may risk losing the deposit, depending on contract language and facts.
- You default without a contract remedy. The seller may retain the deposit as liquidated damages or pursue other remedies as allowed by the contract.
- You and the seller agree to end the contract. A mutual release can instruct escrow on how to return or split funds.
When a seller can keep it
Colorado contracts often include a liquidated damages option. If a buyer defaults without a contractual right to terminate, the seller may elect to keep the earnest money as liquidated damages. The exact outcome depends on the contract form and the facts.
Sellers can also have other legal remedies, such as a suit for specific performance or damages, unless the contract limits those options. If a seller fails to perform, the buyer can seek return of the deposit and may pursue other remedies allowed by the contract. Always review your contract and speak with your advisor if a dispute is likely.
How escrow releases earnest money
Escrow and title companies follow written instructions in the contract and their own policies. To release earnest money, they typically require one of the following:
- A signed mutual release from buyer and seller
- A court order or arbitration award with disbursement instructions
- Interpleader or another formal process if the parties disagree
If a dispute arises, escrow will usually hold funds until the parties resolve it in writing or through a legal order. Acting quickly and following the contract notice steps can shorten delays.
Durango and La Plata County nuances
Local market conditions influence how much earnest money buyers offer and what sellers expect. In competitive seasons and with second‑home or resort properties, deposits may trend higher to show strength. In slower periods, deposit sizes may be more modest.
Escrow is normally handled by neutral title companies serving Durango and La Plata County. Funds are not recorded with the county. They are applied at closing. Seasonal demand, outdoor recreation appeal, and resort activity around areas like Purgatory Resort can shape norms. Check current practices with your local agent or escrow provider before you write.
Buyer checklist: protect your deposit
- Confirm the escrow holder. Make sure the contract names a neutral title or escrow company or a broker trust account.
- Get a deposit receipt. Keep the Earnest Money Receipt showing the amount, date, and account.
- Meet deadlines. Calendar inspection, title, appraisal, and financing timelines. Submit all notices in writing.
- Size your deposit strategically. Larger deposits can strengthen offers, but increase exposure if you default.
- Verify wiring instructions. Call the title company using a verified phone number. Do not rely on email links.
- Keep copies. Save emails, notices, and lender messages to prove timely performance if needed.
Seller checklist: strengthen your position
- Set a clear deposit amount and timing. Make sure the contract states how much, who holds it, and when it is due.
- Confirm receipt quickly. Ask your agent or escrow holder for written confirmation when funds arrive.
- Review remedies in your contract. Understand liquidated damages and other options before a problem occurs.
- Calibrate to market speed. If the market is moving fast and a deposit feels light, request a higher amount or shorter contingency windows.
- Enforce deadlines when needed. If a buyer misses a deposit due date or other key deadline, consult your broker about next steps.
Both parties: avoid wire fraud
Wire fraud is a real risk when sending large deposits. Before you wire, call the escrow company using a trusted number to verify instructions. Do not use phone numbers or links sent in email without independent verification. Confirm the recipient name and account details, and send a small test only if your escrow company allows it. If anything looks off, stop and verify again.
Practical next steps in Durango
- Ask your agent to review the earnest money section of the Colorado contract with you, including deadlines and release procedures.
- Decide who will hold the deposit and request their written escrow instructions before wiring funds.
- Match deposit size to market conditions. Your agent can help you gauge what is customary today for your price range and property type.
- Plan your timeline. Align inspection schedules, lender milestones, and appraisal windows to protect your contingency rights.
- If a dispute emerges, communicate early with your agent and consider legal counsel. Many escrow holders will not release funds without a mutual release or a formal order.
When you understand how earnest money works, you can write a cleaner offer, set expectations, and avoid surprises. With clear terms, timely notices, and secure handling, you protect your interests and keep your Durango transaction moving.
Ready for local guidance tailored to your property and price point? Connect with Jeremiah for a quick strategy call or to calibrate your deposit and deadlines. If you are selling, you can also use our quick tool to estimate value and plan your timing.
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FAQs
Is earnest money required in Colorado real estate?
- No law requires it, but most sellers expect a deposit, and many contracts include it. Offers without a deposit are usually less competitive.
How much earnest money is typical in Durango, Colorado?
- It varies by market conditions and price range. Ask your Durango agent about current norms for your neighborhood and property type.
Who holds earnest money in Colorado transactions?
- A neutral title or escrow company, or a broker trust account named in the contract. You should receive a written Earnest Money Receipt.
When is earnest money refundable under Colorado contracts?
- It is generally refundable if you terminate for a valid contingency and follow the exact notice procedure and deadlines in your contract.
How do I get my earnest money back if the seller will not sign a release?
- Follow your contract’s dispute and release procedures. Options often include negotiation, mediation or arbitration if provided, or a court order for disbursement.
