Fourteen Days, a Low Appraisal, and $5,000 in Escrow
Rebecca Chase signs the Vermont Residential Purchase and Sale Agreement to buy a 1900 farmhouse in Middlebury for $385,000. Terms: $5,000 deposit held in the listing broker's escrow account; a 14-day inspection contingency; a 30-day financing contingency; closing 60 days after acceptance. Acceptance is Monday, April 7. Her inspector finds a failed chimney liner and water in the basement on April 19, sends the written report April 22, and Rebecca emails a written notice terminating on April 24. Separately, the appraisal comes in at $355,000. The lender says it will lend only against the appraised value, so Rebecca would need about $30,000 more cash, which she does not have. The seller refuses to release the deposit and demands it be paid to him.
1. Was Rebecca's inspection termination effective? What are her options now?
Read the worked answer
No. The notice was late.
- The 14-day inspection period runs from acceptance on April 7 and expired April 21 (acceptance day is not counted; the period ends 14 calendar days later). The April 24 email is three days past the deadline.
- Purchase-and-sale forms of this type make deadlines enforceable and treat time as of the essence. A buyer who misses the deadline has waived the inspection contingency and lost the contractual right to terminate on the basis of the inspection findings.
- Her report date (April 22) does not matter; what matters is when the written notice reached the seller.
- Options: (1) ask the seller for a written extension or a repair credit - the seller may agree, but has no obligation; (2) proceed toward closing and absorb the defects; (3) find an independent basis to terminate (e.g., a genuine financing failure, a title defect); (4) if the seller refuses to close or breaches, look to the contract's remedies.
- Note for the file: an email may satisfy a written-notice requirement only if the contract's notice provision allows electronic delivery to the address specified.
2. Can Rebecca use the financing contingency to get out because the appraisal came in at $355,000?
Read the worked answer
Probably not, on these facts.
- A financing contingency protects a buyer who cannot obtain a loan on the terms stated in the contract (loan amount, rate, term, type). It is not a value-guarantee clause. A low appraisal only defeats financing if the contract conditions the deal on the property appraising at or above the purchase price.
- Here the lender is willing to lend - just less. Rebecca could close by bringing roughly $30,000 more cash. Choosing not to is a decision, not a financing failure, and does not excuse her performance.
- To preserve a financing-based exit she would need to act in good faith and on time: apply promptly, cooperate with the lender, and deliver the required written notice with the lender's written denial or commitment letter before the 30-day deadline (which runs to about May 7). A conditional approval the buyer could satisfy is generally not a denial.
- If she wants the house, the realistic play is to renegotiate price or ask for a credit before the financing deadline, with the lender's numbers in hand and written documentation of the gap.
3. The seller demands the deposit. What may the listing broker do with the $5,000?
Read the worked answer
Hold it. The broker is a stakeholder, not a judge.
- The deposit must stay in the broker's escrow account. The broker may not pay it to the seller merely because the seller demands it, may not pay it to the buyer, and may not apply it to anyone's commission.
- Disbursement requires either (a) a written release or direction signed by both parties, or (b) a court order, arbitration award, or other binding determination. A one-sided demand is neither.
- The broker's job is to notify both parties in writing promptly that the funds are in dispute, describe the competing claims, and keep the escrow records, the deposit receipt, the contract, and all notices in the transaction file.
- If the parties want a faster path, the contract may contain a dispute-resolution or mediation clause, and Vermont practice commonly sends these disputes to the parties' attorneys. The broker should not give legal advice about who is entitled to the money.