Why Buyers Can Walk When the Home Doesn’t Appraise

“Buyer agrees to pay in the following manner:  1) Cash of _____ percent (%) of the sale price, or more in Buyer’s sole discretion . . . “

–Excerpt, standard Minnesota Purchase Agreement (emphasis added).

[Editor’s Note:  The views expressed here are solely those of Ross Kaplan, and do not represent Edina Realty, Berkshire Hathaway, or any other entity referenced.  If you need legal advice, please consult an attorney.]

When the Buyer and Seller strike a deal contingent on the Buyer’s financing, and the home subsequently doesn’t appraise, what happens next?

It depends.

The Seller may agree to reduce the sales price to the appraised value (or closer).

The Buyer may agree to overshoot the appraised price, and put in more cash.

Or both (the usual resolution).

But, the Buyer doesn’t have to put in more cash, per the “Buyer’s sole discretion” language (above).

Bottom line:  if the Buyer and Seller can’t agree on a renegotiated price, the Buyer has the option of walking and getting their earnest money back.

Which is why, if a home doesn’t appraise, in practice the sales price does get reduced.

See also,  “You mean, there’s no deal AND they get they’re earnest money back?!?”;  “What if it Doesn’t Appraise?”

P.S.:  The one, main exception to the above?

In multiple offers, if the Buyer and Seller agree on language requiring the Buyer to put in more money if there’s a shortfall in the appraisal price.

About the author

Ross Kaplan has 19+ years experience selling real estate all over the Twin Cities. He is also a 12-time consecutive "Super Real Estate Agent," as determined by Mpls. - St. Paul Magazine and Twin Cities Business Magazine. Prior to becoming a Realtor, Ross was an attorney (corporate law), CPA, and entrepreneur. He holds an economics degree from Stanford.

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