Florida Real Estate Broker ExaminationReal Estate Law and RegulationsMedium
A Florida real estate sales associate is presenting an offer to a seller for a residential property. The offer is contingent on the buyer obtaining a conventional loan for 80% of the purchase price within 30 days. The seller counters with a higher price and a requirement for the buyer to obtain financing within 20 days. If the buyer accepts the counteroffer, and after 25 days still has not secured financing, what is the most likely outcome?
- AThe buyer is automatically approved for a loan by the seller's preferred lender to close the deal.
- BThe contract remains valid, but the buyer's earnest money deposit is forfeited as liquidated damages.
- CThe seller can immediately terminate the contract due to the expired financing contingency.
- DThe buyer can request an extension, and the seller must grant it if the buyer shows good faith effort.
Show answer & explanationAnswer & explanation
Correct answer: C. The seller can immediately terminate the contract due to the expired financing contingency.
If a financing contingency has a specific deadline, and the buyer fails to secure financing by that date, the seller typically has the right to terminate the contract. The contract's terms govern the specific actions.
Why the other options are wrong
- A. Automatic loan approval is not a standard contractual remedy for a failed financing contingency and is highly improbable.
- B. Forfeiture of earnest money as liquidated damages usually occurs if the buyer breaches the contract, not necessarily for a contingency failure unless specified as a remedy for that failure.
- D. The seller is not obligated to grant an extension, even with a good faith effort by the buyer, unless the contract specifies otherwise.
Financing Contingency Expiration
A clause allowing contract termination if a buyer fails to secure specified financing by a set deadline; if unmet, the non-breaching party can typically terminate.
- Protects the buyer from losing earnest money if financing falls through.
- Includes a specific deadline for loan approval.
- If the deadline passes without financing, the contract may become voidable by the seller.
Memory trick: Contingencies are like a timed 'if-then' statement in a contract.