diff --git a/src/TemplateBinding.js b/src/TemplateBinding.js
index 9467b62..c66e1a5 100644
--- a/src/TemplateBinding.js
+++ b/src/TemplateBinding.js
@@ -653,10 +653,9 @@
   function processSinglePathBinding(name, tokens, node, model) {
     var delegateFn = tokens[2];
     var delegateValue = delegateFn && delegateFn(model, node);
-    if (Observer.isObservable(delegateValue))
-      return delegateValue;
+    var observer = Observer.isObservable(delegateValue) ? delegateValue :
+        new PathObserver(model, tokens[1]);
 
-    var observer = new PathObserver(model, tokens[1]);
     return tokens.isSimplePath ? observer :
         new ObserverTransform(observer, tokens.combinator);
   }
diff --git a/tests/tests.js b/tests/tests.js
index ad0e5b0..9501d0a 100644
--- a/tests/tests.js
+++ b/tests/tests.js
@@ -2166,6 +2166,34 @@ suite('Binding Delegate API', function() {
 
     assert.equal('barValue', div.lastChild.getAttribute('bar'));
   });
+
+  test('issue-18', function() {
+
+    var delegate = {
+      prepareBinding: function(path, name, node) {
+        if (name != 'class')
+          return;
+
+        return function(model) {
+          return new PathObserver(model, path);
+        }
+      }
+    };
+
+    var div = createTestHtml(
+        '<template bind>' +
+          '<div class="foo: {{ bar }}"></div>' +
+        '</template>');
+
+    var model = {
+      bar: 2
+    };
+
+    recursivelySetTemplateModel(div, model, delegate);
+    Platform.performMicrotaskCheckpoint();
+
+    assert.equal('foo: 2', div.lastChild.getAttribute('class'));
+  });
 });
 
 suite('Compat', function() {