A Washington buyer is purchasing a home with an FHA loan. The purchase and sale agreement includes a financing contingency and an FHA amendatory clause. The FHA appraisal comes in $20,000 below the purchase price. The seller refuses to lower the price. Which of the following best describes the buyer's options under Washington law and FHA requirements?
Correct Answer
D) The buyer may pay the $20,000 difference in cash, renegotiate the price with the seller, or terminate and recover earnest money
When an FHA appraisal comes in below the purchase price, the FHA amendatory clause (required in FHA transactions) gives the buyer the right to terminate the contract and recover earnest money if the appraised value is less than the purchase price. However, the buyer also has the option to make up the difference in cash (paying the gap between appraised value and purchase price) or to renegotiate the price with the seller. The buyer has multiple options and is not forced to close or terminate — but the financing contingency and FHA amendatory clause together protect the buyer's earnest money.
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Related Topics & Key Terms
Key Terms:
Related Concepts
A financing contingency makes the purchase contract conditional upon the buyer obtaining mortgage approval within a specified time period. If the buyer cannot secure financing, they can cancel the contract and receive their earnest money back.
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.
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