Can buyers cancel a real estate contract based on their own appraisal? Glenn v. Reese Explained

The Utah Supreme Court’s decision in Glenn v. Reese clarified important questions about contract interpretation and cancellation rights in real estate transactions. The case involved buyers who obtained their own appraisal showing the property valued at $80,000 below the purchase price and sought to cancel their real estate purchase contract.

Background and Facts

In December 2007, the Reeses (buyers) agreed to purchase the Glenns’ (sellers) home for $540,000 under a Real Estate Purchase Contract (REPC). The contract contained two relevant provisions: Section 2.4 allowed cancellation if a lender-obtained appraisal came in below the purchase price, while Section 8 permitted cancellation based on “any other [test or evaluation] deemed necessary by buyers.” When buyers obtained an independent appraisal valuing the property at $460,000, they attempted to renegotiate the price through addenda, then ultimately cancelled the contract when sellers refused.

Key Legal Issues

The central issue was whether the REPC was ambiguous and, if not, whether Section 8’s “other evaluations” provision allowed buyers to cancel based on their own appraisal. Sellers argued that only Section 2.4’s lender-appraisal provision governed cancellations based on property value, while buyers contended that Section 8 provided an independent cancellation right.

Court’s Analysis and Holding

The court applied established contract interpretation principles, examining the plain language to determine meaning and intent. Finding the contract unambiguous, the court held that “appraisal” falls within the ordinary meaning of “evaluation” under Section 8. The court rejected sellers’ argument that the specific Section 2.4 provision should govern over the general Section 8 language, noting that Section 2.4 itself states that “cancellation pursuant to the provisions of any other section of this Contract shall be governed by such other provisions.”

Practice Implications

This decision demonstrates the importance of careful contract drafting in real estate transactions. The court’s interpretation allows buyers multiple avenues for cancellation based on unfavorable appraisals, whether obtained by lenders or independently. Practitioners should ensure that cancellation provisions clearly delineate the scope and procedures for different types of evaluations to avoid ambiguity and unintended consequences.