Texas Real Estate Sales Agent ExamTexas Real Estate LawMedium
A real estate sales agent is involved in a transaction where a contract for sale has been signed by both parties. Before closing, the buyer decides they no longer wish to purchase the property for personal reasons and wants to terminate the contract. The contract includes the TREC promulgated 'Addendum for 'Back-Up' Contract' and the 'Third Party Financing Addendum'. Which of the following allows the buyer to terminate and potentially receive their earnest money back?
- AThe buyer can terminate at any time before closing for personal reasons and retrieve their earnest money.
- BThe buyer can always terminate if the seller is unwilling to reduce the purchase price.
- CThe 'Back-Up' Contract Addendum allows termination if the primary contract falls through.
- DThe 'Third Party Financing Addendum' may allow termination if the buyer is unable to obtain financing approval within the specified time frame.
Show answer & explanationAnswer & explanation
Correct answer: D. The 'Third Party Financing Addendum' may allow termination if the buyer is unable to obtain financing approval within the specified time frame.
The 'Third Party Financing Addendum' typically includes a clause allowing the buyer to terminate the contract and receive earnest money back if they are unable to obtain financing approval within a specified period, provided they give proper notice. This is a common and legitimate contingency for buyers.
Why the other options are wrong
- A. Terminating for personal reasons without a contractual right would likely result in forfeiture of earnest money.
- B. The seller's willingness to reduce the price is not a standard contractual right for the buyer to terminate.
- C. The 'Back-Up' Contract Addendum applies when the contract is in a back-up position, not for a buyer in a primary contract to terminate for personal reasons.
Contingency Clause
A provision in a real estate contract that makes the contract's validity conditional upon the fulfillment of certain events or actions, often allowing for termination if not met.
- Creates conditions for contract validity
- Failure to meet can lead to termination
- Common examples: financing, inspection, appraisal
Memory trick: A contract's escape door opens only if a contingency key fits.