The Appraisal Gap, the Lapsed Contingency, and the $10,000 in the Middle

Original deal:

• Price $425,000; 90% loan = $382,500; down payment = $42,500.
• Origination point: 1% of $382,500 = $3,825.
• Cash before prepaids/escrows: $42,500 + $9,000 + $3,825 = $55,325.

After the $400,000 appraisal:

• Maximum loan at 90% LTV = $360,000.
• Required down payment = $425,000 − $360,000 = $65,000.
• Origination point: 1% of $360,000 = $3,600.
• Cash before prepaids/escrows: $65,000 + $9,000 + $3,600 = $77,600.

Difference: about $22,275 more cash (plus higher monthly cost, because a 90% loan carries mortgage insurance and the loan is now smaller relative to a larger equity position).

The point to make to Marcus: the appraisal did not change the price; it changed the lender's willingness to lend against that price. The $25,000 gap ($425,000 − $400,000) has to be filled with cash, a price reduction, a second appraisal, or a different loan structure - or the deal fails. The break-even question is whether Marcus can find $22,000+ and still want the house.

Probably not as things stand, and "waiting it out" is the worst option.

The contingency gave Marcus 21 days to obtain financing and, critically, to give written notice if he did not. Two facts hurt him:

• The commitment arrived on day 24 - after the deadline.
• Nobody delivered written notice of a financing failure at any point, and attorney review closed two weeks ago.

A financing contingency is not a permanent escape hatch. When the period lapses without notice, the buyer is generally obligated to perform, and the seller can argue the deposit is at risk. A late commitment conditioned on a lower loan amount is not performance - but Marcus's protection expired before he used it.

What Tanya must do:

• Tell him the truth about the dates in his own contract, in writing.
• Tell him she cannot evaluate his legal exposure - he needs his attorney now, not after the closing date.
• Stop the clock running in the background: get the attorney to communicate with the seller's attorney immediately in writing.

What Tanya must not do: promise the deposit will come back, advise him to breach, or tell him the appraisal "cancels" the contract. It does not.

Entitlement is not the broker's call. The broker holds the deposit as a stakeholder. The Commission's escrow rules do not authorize the broker to decide who wins a contract dispute, and releasing funds to either side on a one-sided demand is how brokers end up paying the dispute out of their own pocket.

Correct handling:

• Keep the money in the escrow account, untouched and reconciled.
• Put both parties and both attorneys on written notice of the competing demands.
• Release only on (a) a written agreement signed by buyer and seller directing disbursement, or (b) a court order or binding arbitration/mediation result. Some contracts designate an arbitration or mediation route for deposit disputes - read the contract.
• If the parties will not agree, consider interpleader so a court decides.

On the merits, likely arguments: the seller says the buyer missed his contingency deadline and is in default, so liquidated damages apply. The buyer says the loan he could obtain was not the loan contemplated, the seller suffered no loss (the seller had already moved out and the market may have moved up), and a liquidated damages clause that operates as a penalty is unenforceable. That is attorney territory.

Tanya's role: facts, not advocacy for a legal outcome. She should also confirm the deposit was properly receipted, deposited, and recorded under the brokerage's escrow procedures - because if this goes to a hearing, the escrow records are the first thing anyone asks for.