Why a low appraisal may not kill the deal
The home I listed has appraised lower than the sales price in the contract. The buyer believes that he can terminate the transaction based on the Third Party Financing section (Paragraph 4A) of the One to Four Family Residential Contract we used for this deal. Is this true?
Maybe. A low appraisal doesn’t always give a buyer an automatic right to terminate the contract. It depends on whether the lender approves financing for the amount written into Paragraph 4A. If the lender doesn’t approve the loan because of the appraisal, the buyer can terminate at any time before closing and receive his earnest money back.
However, the lender may still approve the loan despite the low appraisal. This could happen if the buyer is making a large downpayment. If the lender still approves the loan, the buyer may not use a low appraisal as a reason to terminate under Paragraph 4A.
Remember that a buyer’s right to terminate under Paragraph 4A of the Third Party Financing section is different than what’s provided in the Third Party Financing Addendum for Credit Approval.