David is selling his home in Chesapeake, Virginia under a standard purchase agreement. The buyer submits a written request for repairs after the home inspection. David refuses to make any repairs and the buyer threatens to cancel the contract. The purchase agreement contains an inspection contingency allowing the buyer to cancel if the seller refuses to negotiate repairs. The buyer sends a written cancellation notice within the contingency period. What happens to the earnest money deposit?
Correct Answer
A) The earnest money is returned to the buyer because the cancellation was made pursuant to a valid contingency
When a buyer properly exercises a contractual contingency—such as an inspection contingency—within the specified timeframe, the contract is voided without default by either party. Under Virginia law and standard purchase agreement terms, the earnest money deposit must be returned to the buyer when the contract is cancelled pursuant to a valid, properly exercised contingency.
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Related Topics & Key Terms
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Related Concepts
An appraisal contingency allows the buyer to cancel or renegotiate the contract if the property's appraised value comes in lower than the agreed-upon purchase price. This contingency protects buyers from overpaying.
An assignment of contract transfers one party's rights and obligations under a contract to a third party called the assignee. The original party, known as the assignor, transfers their contractual position to someone who was not originally part of the agreement.
A bilateral contract is an agreement in which both parties exchange promises and are both obligated to perform, while a unilateral contract is one in which only one party makes a promise and the other party is not obligated to act.
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