Colorado Sales License Practice Test

Earnest money refers to a deposit made by a buyer to demonstrate their serious intent to purchase a property. This financial commitment serves as a good faith gesture that signifies the buyer's seriousness in entering into a purchase agreement. When a buyer makes an offer on a property, the earnest money is typically submitted along with the offer to show that they are committed to following through with the transaction, should their offer be accepted.

In many cases, the earnest money is held in an escrow account until the transaction is completed, at which point it can be applied to the down payment or closing costs. If the deal falls through due to the buyer's fault, they may forfeit this deposit; however, if the deal does not proceed due to contingencies outlined in the contract, the buyer typically gets their earnest money refunded. This practice helps protect both the seller and buyer in the transaction and fosters trust throughout the process.