A buyer and seller entered into a Residential Resale Real Estate Purchase Contract (the “Contract”). During the escrow process, the buyer received notice from her lender that the property appraised for the contract price. The buyer therefore notified the seller that the property had appraised for the contract price.
However, ten (10) days before close of escrow, the underwriter notified the buyer that the appraisal had been flagged for review. Within three (3) days, the buyer was notified that the appraisal value had been decreased during the review. The buyer now notifies the seller that she cannot qualify and, pursuant to section 2l of the Contract, is electing to cancel based on the appraisal contingency.
Can the buyer cancel based on section 2l of the Contract during an appraisal review?
Section 2l of the contract reads: “If the Premises fail to appraise for the purchase price in any appraisal required by lender, 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, unless otherwise prohibited by federal law.”
During an appraisal review, the buyer received a new notice of value, therefore, the buyer likely had five (5) days from the notice of the new value to cancel or waive the contingency. If the buyer fails to cancel within five (5) days, then the buyer must proceed with the Contract.