Low Appraisal, Missing Release
A buyer and seller sign an Arkansas residential contract for $285,000 with a $5,000 earnest money deposit, a 30-day financing contingency, and a 21-day appraisal contingency. The listing broker holds the earnest money in its trust account. On day 18 the appraisal comes in at $270,000. The buyer's lender will not lend above 90% of appraised value, and the buyer does not have extra cash. The buyer delivers a written termination and a copy of the appraisal on day 20. The seller refuses to sign a release, saying the buyer 'didn't try to renegotiate' and that the closing date has passed. The broker asks whether it can return the $5,000.
1. Who is entitled to the $5,000 earnest money under the contract timeline, and what facts control?
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The contract timeline controls. The buyer had a 21-day appraisal contingency and a 30-day financing contingency. On day 18 the appraisal was $270,000; on day 20 the buyer delivered a written termination and the appraisal. If the contract conditioned the buyer's obligation on an appraisal at or above the purchase price, the buyer exercised a contractual right within the contingency period.
The seller's argument that the buyer 'didn't try to renegotiate' is irrelevant unless the contract imposed a duty to renegotiate, which residential contingencies usually do not. A financing contingency also protects the buyer if the lender will not fund based on the lower appraisal. The closing date passing does not by itself forfeit the earnest money if the buyer timely terminated under a contingency. On these facts, the buyer has the stronger claim to the $5,000.
2. What may the listing broker do with the disputed funds, and what should the broker do next?
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The broker is a stakeholder, not a judge. It should not return the $5,000 to the buyer without the seller's written release, and it should not give it to the seller. The broker should send a written demand for release to both parties, keep the funds in the trust account, and if the seller refuses, interplead the funds or follow the Commission's dispute procedure.
The broker should also document the termination delivery, the appraisal, and the lender's refusal. The buyer's agent should have delivered the termination and appraisal by a method permitted in the contract, kept proof of delivery, and calendared all contingency dates. The broker should not disburse based on its own view of who is right.