Can a buyer back out of a signed contract because the appraissal comes in for an amount lower than he agreed to pay?

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Can a buyer back out of a signed contract because the appraissal comes in for an amount lower than he agreed to pay?

Asked on February 11, 2017 under Real Estate Law, California

Answers:

M.D., Member, California and New York Bar / FreeAdvice Contributing Attorney

Answered 4 years ago | Contributor

It depends. Was the contract written with an "apparaisal contingency", meaning that the buyer does not have to purchase the home unless it appraises for at least the sales price? If so, then they can get out of the contract. However, if the appraisal contingency was removed, then they are bound to go forward with the purchase. If the appraisal contingency is still in the contract but has a “cap” (ie: the buyer has agreed to pay a set amount above the appraisal value if the value comes in below the purchase privce), then the sales price would be the appraisal value plus the cap. For example, if the sales price is $400,000, and in the contract the buyer has agreed to pay up to $15,000 over the appraisal price up to the contract price of $400,000”, then if the appraisal price comes in at $375,000, then the sales price would be $390,000 ($375,000plus the $105,000 cap). If the appraisal value came in at $395,000, the buyer would only have to pay $5,000, since that’s all they would need to do to remain with the $400,000 sales price.


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