Faried is part of the 2011 NBA draft class eligible for extensions until Oct. 31.
The deal includes a partial guarantee in the fifth year that assures Faried he will make no less than $52 million over the life of the contract, sources said.
Denver general manager Tim Connelly and Faried's agent, Thad Foucher of Wasserman Media Group, started to seriously exchange proposals in the past week and ultimately came to terms on a deal Sunday night, sources told Yahoo Sports.
Faried has developed into one of the NBA's most relentless talents, a fierce rebounder and defender who has excelled offensively for the Nuggets when the game is speeded up. Faried played an integral part of the United States national team's gold-medal performance in the 2014 World Cup of Basketball in Spain.
Several other members of the 2011 draft class are negotiating extensions with their teams, including Golden State's Klay Thompson, San Antonio's Kawhi Leonard, Chicago's Jimmy Butler and Utah's Alec Burks and Enes Kanter.
Faried, 24, is a tremendous success story in the NBA. As a 6-foot-8 post player out of mid-major Morehead State, Faried transformed himself from the 22nd overall pick in the 2011 draft into an integral part of the Nuggets' long-term nucleus.
Faried averaged 13.7 points and 8.6 rebounds last season.
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