ContractsIntermediateDelaware Exam

What is an 'appraisal contingency' in a Delaware purchase contract and how does it protect the buyer?

AA contingency allowing the buyer to order multiple appraisals
BA contingency allowing the buyer to terminate or renegotiate if the property appraises below the purchase priceCorrect
CSimply a narrow contingency protecting only the seller in the rare case the appraisal comes in above the purchase price
DA contingency requiring the seller to pay for the appraisal

Why A contingency allowing the buyer to terminate or renegotiate if the property appraises below the purchase price Is Correct

Answer B: A contingency allowing the buyer to terminate or renegotiate if the property appraises below the purchase price

An appraisal contingency protects the buyer if the property appraises below the purchase price. Options upon low appraisal: (1) seller reduces price to appraised value; (2) buyer pays the difference in cash (makes up the gap); (3) parties renegotiate; or (4) buyer terminates and receives earnest money back.

Exam Tip: Contracts

Contract questions frequently test the essential elements required for a valid contract. Remember: competent parties, mutual consent, lawful object, and sufficient consideration. Watch for void vs. voidable distinctions.

Key Contracts Terms in This Question

Earnest Money

A deposit made by the buyer when submitting a purchase offer, demonstrating serious intent and serving as consideration for the contract.

Contingency

A condition in a purchase contract that must be satisfied before the sale can proceed to closing.

Appraisal

A professional estimate of a property's market value prepared by a licensed or certified appraiser.

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