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Marsha411JD, Lawyer
Category: Real Estate Law
Satisfied Customers: 20299
Experience:  Licensed Attorney with 29 yrs. experience with Real Estate
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My husband and I put an offer on a house. The appraisal came

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My husband and I put an offer on a house. The appraisal came back $5000 under the price. We asked our realtor to renegotiate to the appraised price. Or closing date is less than a week away, we have yet to make any necessary arrangements to move, etc and we have yet to hear back from the seller. I told our realtor that if we didn't hear by today, that we would like to use the third party financing clause which states that if the underwriting (including appraisal) doesn't work out, we can terminate the contract and get our earnest money back. Our realtor keeps telling me that if we don't wait to hear what he is offering that we will lose our earnest money. Legally, can we back out without losing our earnest money?

Thank you for the information and your question. Can you tell me if your contract used the standard language I have included below? Are you saying that your lender refused to lend you the money for the house because of the appraisal? Was there any other contingency in the contract, such as an inspection clause?

A. THIRD PARTY FINANCING: One or more third party mortgage loans in the total amount of $ (excluding any loan funding fee or mortgage insurance premium). (1) Property Approval: If the Property does not satisfy the lenders' underwriting requirements for the loan(s) (including, but not limited to appraisal, insurability and lender required repairs), Buyer may terminate this contract by giving notice to Seller prior to closing and the earnest money will be refunded to Buyer. (2) Credit Approval: (Check one box only) ‰ (a) This contract is subject to Buyer being approved for the financing described in the attached Third Party Financing Addendum for Credit Approval. (b) This contract is not subject to Buyer being approved for financing and does not involve FHA or VA financing
Customer: replied 4 years ago.

Yes, the contract used the standard language included below. Our lender refused to lend us the total offered price because of appraisal. They will still lend us up to the appraised price. Thus, we asked our realtor to renegotiate to the approved price.


The other contingency clause with regard to inspection or opt out gave us 10 days from the date the contract went into effect to get inspection done and be able to opt out without losing our earnest money.

Hello again and thank you for your reply. Technically, under that language you would not be required to do anything other than cancel the contract, since your loan was not approved (at the offered price), and you would be entitled to a refund of your earnest money. That is because that contingency failed. There is no duty to give the other party an opportunity to lower the price. That said, if you have now made a new offer of the appraised price, then if you gave them a certain number of days to come back with an answer, you would have to wait until that time has run, to officially demand your earnest money back.

However, if you issued an offer with no time limit, you have the right to withdraw that offer any time before they accept. In that case, since the original contingency failed, you would be entitled to the return of your earnest money. It appears though that there may ultimately be a disagreement about this, if your Realtor is any indication. In that case, you may end up having to sue to get it back, since the escrow company (or whoever is holding your earnest money, generally won't release it without agreement of the other party.)

Please let me know if you need any clarification. I would be glad to assist you further if I can.
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