Kevin is selling his Aurora home and receives an offer with an appraisal contingency. The property appraises for $15,000 less than the purchase price. Kevin refuses to reduce the price. The buyer timely exercises the appraisal contingency and sends written notice of termination. Under the CREC contract, what happens to the earnest money?
Correct Answer
C) The earnest money is returned to the buyer because the contingency was properly exercised
When a buyer properly and timely exercises a contingency under the CREC-approved Contract to Buy and Sell Real Estate — such as an appraisal contingency when the property appraises below the purchase price — the buyer is entitled to terminate the contract and receive a full refund of earnest money. The contingency exists precisely to protect the buyer in this scenario. Because the buyer followed the contract's required procedure (timely written notice), the termination is valid and the earnest money must be returned.
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Related Topics & Key Terms
Key Terms:
Related Concepts
Liquidated damages are a predetermined amount of money specified in the contract that the non-breaching party is entitled to receive if the other party breaches. In real estate, the earnest money deposit typically serves as liquidated damages.
Novation is the substitution of a new contract for an existing one, or the replacement of one party with a new party, with the consent of all parties involved. The original party is completely released from all obligations.
Offer and acceptance is the process by which one party proposes specific terms for a contract and the other party agrees to those exact terms, creating mutual assent. This mutual agreement, also called a meeting of the minds, is an essential element of every valid contract.
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