Contract Close-Up: Addendum Concerning Right to Terminate Due to Lender’s Appraisal

July 01, 2019

The Addendum Concerning Right to Terminate Due to Lender’s Appraisal (TXR 1948) is to be used only when the Third-Party Financing Addendum (TXR 1901) is used as well. It is not to be used in transactions involving FHA or VA financing. The addendum has three options that can change a buyer’s ability to terminate because of an appraisal. Here’s how they work:

1. Waiver

If your client selects this choice, she waives her right to terminate if the appraisal doesn’t satisfy the lender’s underwriting requirements. The form says if the lender reduces the amount of the loan, the buyer covers the difference between the loan and the sales price. Make sure your client understands the financial consequences.

2. Partial Waiver

If your client selects this choice, she is waiving her right to terminate only if the appraisal meets or exceeds the amount she selects for the space in (2)(ii). If the appraisal is lower than the amount in (2)(ii), the buyer may terminate if the appraisal doesn’t satisfy the lender’s underwriting requirements. The form says if the lender reduces the amount of loan because of the appraisal, and the appraisal is equal to or more than the amount written in (2)(ii), the buyer covers the difference between the loan and the sale price. Your client should carefully choose the amount for the space in (2)(ii).

3. Additional Right to Terminate

If your client selects this choice, she has an additional right to terminate the contract due to the appraisal in certain circumstances. For example, she might want an option to terminate if the property does not appraise for a certain amount. Make sure your client carefully considers the appraisal amount she is comfortable with and selects a time period that gives the lender enough time to obtain an appraisal.

This addendum is not required or necessary if your client is not interested in modifying her right to terminate due to the lender’s appraisal.

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