Appraisal sqft was over 10 less than the sellers represented on MLS, can we back out of contract and keep earnest money?

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Appraisal sqft was over 10 less than the sellers represented on MLS, can we back out of contract and keep earnest money?

Appraisal came back with 2536sqft and the sellers listed 2839sqft on MLS. We used price per sqft to calculate offer price and purchase price. Now the appraisal came back from the lender with 303sqft less than what we expected per sellers My clients tried to renegotiate sale price but sellers did not want to. Now we want to back out of contract using paragraph 19, false representation by sellers prior to closing. Can we get our earnest money back and back out of the contract?

Asked on September 11, 2017 under Real Estate Law, Texas

Answers:

SJZ, Member, New York Bar / FreeAdvice Contributing Attorney

Answered 3 years ago | Contributor

Most likely you cannot:
1) Fraud is a knowing (or intentional) misrepresentation or lie; being mistaken is not fraud and generally is not grounds to rescind the agreement. So you'd have to be able to show that the sellers knew (or logically must have known) that the square footage was less than they listed in order to establish that this fraud and get out of the contract, and that it's not simply that the sellers honestly thought it was more sq. ft.
2) To rescind a contract based on fraud, the defrauded (lied to) party must have reasonably relied on the misrepresentation or lie. However, if the buyers saw the home before placing the bid, the law presumes they proposed a price based on what they perceived with their own senses, not based on the listing; it is not reasonable to rely on what someone wrote down about sq. footage (especially given that sq. footage estimates are notoriously unreliable) when you actually saw the home with your ownn eyes and could decide based on that how much you want it and what you are willing to pay. So if your clients saw the home before bidding, they would most likely not be considered to have reasonably relied on the listing, and so it would not be fraud.
Based on what you write, it is unlikely that that this grounds to get out of the contract.


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