A buyer and seller agree to terms in a real estate purchase contract, where the buyer is going to get a loan for the property. One of the conditions of the loan is that the property appraises for at least the purchase price. An appraisal is done on the property and the value came in at the purchase price.
Buyer and seller are proceeding towards Close of Escrow when the underwriter flagged the appraisal and ordered a review of terms. The value of the property during this review was lowered to below the purchase price, and the buyer was notified of such. The buyer then elected to cancel the contract per the appraisal contingency Section 2L of the purchase contract within 5 days of the notification on the Unfulfilled Loan Contingency form. If the buyer failed to cancel within five (5) days, then the buyer must proceed with the Contract.
Section 2l of the contract reads: “Buyer has five (5) days after notice of the appraised value to cancel this contract and receive a refund of the Earnest Money or the appraisal contingency shall be waived.”
This new notice of value has precedence due to the fact the 1st appraisal was not acceptable to the lender and this newly updated lower value disapproved by the buyer allows them to cancel much to the seller’s objections.
Buyers and sellers should review Prequalification Forms and Loan Status Updates (LSU) and have a discussion with the lender to know what additional requirements may be needed prior to Close of Escrow and the effect they have on the transaction.