A buyer and seller have signed a purchase agreement for a home in Coeur d'Alene, Idaho. The agreement contains a financing contingency stating that the buyer must obtain loan approval within 21 days or the contract is voidable by the buyer. On day 19, the buyer's lender denies the loan application. The buyer notifies the seller in writing on day 20. Which of the following is the most accurate outcome?
Correct Answer
B) The buyer may void the contract and is entitled to a refund of the earnest money deposit
A financing contingency is a condition precedent that protects the buyer. When the lender denies the loan and the buyer properly exercises the contingency by providing written notice within the specified period (day 20, before the 21-day deadline), the buyer has the right to void the contract and recover the earnest money deposit. The contingency was properly invoked.
Why This Is the Correct Answer
Why the Other Options Are Wrong
Deep Analysis of This Contracts Question
Background Knowledge for Contracts
Real World Application in Contracts
Common Mistakes to Avoid on Contracts Questions
Related Topics & Key Terms
Key Terms:
Related Concepts
An inspection contingency gives the buyer the right to have the property professionally inspected within a specified time frame and to negotiate repairs or cancel the contract based on the findings.
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.
More Contracts Questions
A Rhode Island salesperson asks about an owner is about to sign a purchase and sale agreement. What is the best answer?
For the Rhode Island state portion, how should a candidate analyze a seller asks the principal broker about commission split or distribution?
A Rhode Island principal broker reviews a licensee wants to enter a net listing contract. Which answer follows Rhode Island law?
A Rhode Island principal broker reviews a licensee takes a listing agreement. Which answer follows Rhode Island law?
Which Rhode Island rule applies when parties sign a listing, sale, lease, or other real estate contract?
- → A Rhode Island licensee encounters a listing contract is drafted. What should the licensee remember?
- → In Rhode Island, a licensee submits a written purchase or lease offer to an owner. Which statement is correct?
- → A Rhode Island salesperson asks about a listing agreement or contract for sale is prepared. What is the best answer?
- → Which Rhode Island rule applies when a listing agreement lists property with a multiple listing service?
- → A Rhode Island licensee encounters a listing agreement lets the principal broker retain a portion of deposit money upon buyer default. What should the licensee remember?
- → A Hawaii licensee is reviewing the commission asks to inspect escrow and trust records. What is the best answer?
- → A Hawaii broker asks a salesperson about a deed or lease is not recorded. Which answer follows Hawaii law?
- → For the Hawaii salesperson state portion, interest accrues on a trust-account deposit. Which statement is correct?
- → In a Hawaii real estate transaction, trust funds are placed with a neutral escrow depository for Hawaii property. What should the licensee remember?
- → For the Hawaii salesperson state portion, a licensee secures a party signature on a Hawaii listing or purchase contract. Which statement is correct?
People Also Study
Buyer Representation Agreement
8% of exam
Property Ownership
10% of exam
Land Use Controls and Regulations
8% of exam
Valuation and Market Analysis
10% of exam
Related Articles
Real Estate Exam Practice Questions by Topic (2026): Free Sets for Contracts, Agency, Financing
Get topic-based real estate exam practice sets and a simple sequence to move from learning to timed mocks.
Real Estate Exam Topics (2026): High-Yield Areas + Common Traps (Contracts, Agency, Financing, Fair Housing)
Learn the highest-frequency real estate exam topics and the traps that cause most wrong answers—plus how to study them.
Real Estate Exam Contracts: The Only Guide You Need (2026) + Practice Questions
Learn the contract rules the exam loves, common trick wording, and how to practice contract questions efficiently.