Realtor® Legal Tip – On the new REPC, if the Buyer timely cancels based on a low appraisal, do they get 100% of their earnest money back? – Most likely yes, if the cancellation is done timely.
October 2, 2017
Author: Curtis Bullock
You all have noticed the change to the Financing Condition. In section 8.3(b)(i) the buyer can decide whether to leave some money on the table if the buyer cancels due to financing after the Due Diligence Deadline but before the F&A Deadline. If this happens, the buyer may forfeit some, all or none of the earnest money depending on how section 8.3(b)(i) was filled out.
But what happens if the buyer cancels because of a low appraisal? In this situation, if the buyer cancels after the Due Diligence, but before the F&A Deadline, 100% of the earnest money would likely be released to the buyer.
The buyer should however submit the Buyer’s Notice of Cancellation form and check the “Appraisal Condition” box, and also provide a copy of the Notice of Appraised Value (see section 8.2(a)). That way, the seller knows the reason for the cancellation is based on the low appraisal as opposed to financing.
In other words, if the REPC is cancelled based on financing, depending on how 8.3(b)(i) was filled out, some, all (or none) of the earnest money may be forfeited. On the other hand, if the REPC is timely and correctly cancelled due to a low appraisal, all 100% of the earnest money is returned to the buyer.
This legal tip is not intended to represent specific legal advice as applied to any transaction. If you have specific legal questions consult your broker and/or counsel.