The Addendum Concerning Right to Terminate Due to Lender’s Appraisal (TXR 1948, TREC 49-1) is to be used only when the Third-Party Financing Addendum (TXR 1901, TREC 40-9) is used. It is not to be used in transactions involving FHA or VA financing or with cash buyers. The addendum has three options that can change a buyer’s ability to terminate the sales contract because of an appraisal. Here’s how they work:
1. Waiver
Under the Third-Party Financing Addendum, the buyer has the right to terminate if a low appraisal does not satisfy the lender’s underwriting requirements for the property. If your client selects this choice on the Addendum Concerning Right to Terminate Due to Lender’s Appraisal, she waives this right to terminate regardless of how far the appraisal is below the sales price. If the lender reduces the amount of the loan because of the low appraisal, the buyer must cover the difference between the loan and the sales price by bringing additional cash to close. Make sure your client understands the financial consequences.
2. Partial Waiver
If your client selects this choice, she is also waiving her right to terminate if the appraisal does not meet lender’s underwriting requirements. However, under this choice, the parties can agree on a limit of how low the appraisal can be when the waiver applies. If the appraisal is equal to or greater than the amount written in line 2(ii), the waiver applies and the buyer cannot terminate. The buyer must bring additional cash to close if the lender reduces the loan, just as in the above choice. If the appraisal is lower than the amount in 2(ii), the waiver does not apply and the buyer may still exercise her right to terminate under the Third-Party Financing Addendum. 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 that is separate from her right to terminate under the Third-Party Financing Addendum. Under the Third-Party Financing Addendum, the buyer’s right to terminate only applies if the low appraisal does not meet the lender’s underwriting requirements. Under this choice on the Addendum Concerning Right to Terminate Due to Lender’s Appraisal, the buyer has the right to terminate if the appraisal falls below the amount filled in line 3(i), regardless of the lender’s requirements. Make sure your client carefully considers the appraisal amount she is comfortable with and selects a period under line 3 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.
As a listing agent, if you receive an offer with conventional loan financing and this addendum is missing, then can you assume the buyer has waived their right to terminate due to the appraisal?
I wouldn’t think so; the buyer still can bail out under paragraph 2(b) of the third party financing addendum if the property doesn’t make value (appraise for the sales price), just like they have been able to for years..
With all due respect, that is not correct.
This is correct IF the lower appraisal value would prevent them from qualifying for their loan. Then they can back out using paragraph 2(b). If they will still qualify for the loan with the lower value (their down payment is high enough to satisfy the loan to value ratio requirement), then they cannot back out using this option.
no
Yes. That is correct. The way the Third Party Financing addendum is written n=only protect buyers using VA and FHA loans. This addendum needs to be used if you want to protect a buyer with a conventional loan.
THEN WHY does : THIRD PARTY FINANCING ADDENDUM. Start with:
1. A CONVENTIONAL FINANCING
Buyer made has an effective contract on new construction home with contingency of sale of her home within 90 days. She sold her home to cash buyer in 4 days and is waiting to close
Then, new construction appraised $70,000 less than her contracted agreed purchase price
The selling agent for new construction is acting as intermediary and is trying to get another appraisal for higher amount. Buyer is about to be homeless….. what needs to happen?
Can she force sale of new construction at appraised value ?
If you are using a builder’s purchase agreement (contract) and the buyer is using a conventional loan, in my experience the builder’s contract doesn’t protect the buyer from a low appraised value and the buyer needs to come up with the money. Read the contract carefully and you will find it.
Can you clarify this form? Option 3 says, _____ days from the effective date. Not EXECUTED date – contracts have executed dates, appraisals have effective dates.
You can learn how to determine the effective date here: http://apbc.ngskmc-eis.net/members/legal-and-ethics/resources/legal-faq/effective-date/
I have a issue with this paragraph having a blank for the days, It’s gonna become a issue when doing amendments for extensions..I think that blank needs removed or at least be added to the amendment to change the amount of days if extensions are necessary it’s not a good form leaves buyers unprotected.
I have a seller agent verbally say her client would accept my clients offer if they would submit an appraisal addendum. My client did so choosing the partial option and at list price. They offered quite a bit over list price willing to pay that over sales price. Then seller agent came back and said her client is expecting full appraisal on the addendum. If not, they will look at other offers. Seems wrong to me on the part of sellers agent. What are your thoughts?
It sounds like the listing agent knows the house will not appraise at the list price. She’s wanting a full Appraisal waiver so the buyer has to cover the difference in your offer price and the appraisal amount.
What happens if your buyer signs for the full appraisal on the addendum but then cannot honor the difference amount? What is their potential loss? Earnest money + option fee?
What would preclude a VA or FHA buyer from using the waiver? In the TPA it states that the buyer would still have the right to proceed with the purchase if the appraisal comes in lower than contract price. The buyer would then used funds to cover the difference.
Federally insured and guaranteed loans – its not an option on these type of loans.
on #3 Additional Right to Terminate; How What amount is usually put and how many days after appraisal is received??
Regarding #3 option…remember the main thin is that option 3 is “in addition to” the termination rights provided for in the 3rd party financing addendum. this additional option is specific to the an appraisal amount that falls below the amount provided in 3(i) of the 3rd party Financing Addendum. So the amount you should show on the Right to Terminate Due to Lender’s Appraisal form, option 3 has to be the amount your buyer is comfortable with paying (covering), up to the amount on the TPF. In terms of “number of days” it should be enough “days” for the lender… Read more »
I have a question,
If my client has submitted an offer for $385k and wants to submit this waiver only for up to $10k more than the appraised value, would I use 2 or 3? How would I fill this out?
How did you end up handling this. I have same situation and need a response
Can the appraisal contingency be added to a new construction home? Esp cause the builder is dropping prices on the homes?
If your client selects this choice, she has an additional right to terminate the contract due to the appraisal that is separate from her right to terminate under the Third-Party Financing Addendum. Does this apply if a male purchases the property? It says ” she has an additional right” and ” her right to. . .”. Shouldn’t this be “they have an additional right” and “their right to terminate” Gender netural referances!
If the lender fails to order an appraisal in a timely manner and cannot close on time, does this give the buyers the right to terminate under (2b) for not meeting the underwriting requirements?
Q. Contract executed on Feb 05, Included 3rd p add and appraisal addendum marked # 3 with 30 days.
After final negotiation amendment being executed on Feb 15 with new price ,
along with appraisal addendum marked #3 with 30 days
Which date will be considered as effective date Feb 05 or Feb 15 to count 30 days for the appraisal addendum, in case termination require.