Tag: contingency

Contingency Removals

What to Know About Contingency Removal by: Sarah Vance

Need to know what a contingency is – check out our previous post here.

All Parties Should Fully Read and Understand
the Purchase Contract They Are Signing

It is important to know what your contract says. Some purchase agreements (such as the C.A.R Residential Purchase Agreement) requires an active removal of contingencies for a real estate contract versus a passive removal. Therefore, an active removal requires an action like all contingencies must be removed in writing and are not automatically removed with the passage of time.  

Each contingency has its own default time period/removal date based upon the terms and Acceptance date of the purchase contract. This date is defined in the offer as when the buyer will remove the contingencies and commit to a firm intent to close escrow. The appraisal, physical inspection, and buyer’s investigation contingencies have a defaulted removal date of 17 days after acceptance and the loan contingency has a default removal date of 21 days after acceptance.

What happens if the contingencies are not removed?

If the contingency period (date) has passed for a contingency to be removed, then the seller (or buyer) may issue a Notice to Perform. This is a tool designed to ensure all parties are sticking to their contractual duties defined in the purchase agreement. The Notice typically allows 48 hours for the other party to remedy the situation otherwise the transaction may be cancelled by the issuing party. Even though the Notice to Perform is in every real estate agent’s arsenal, it is highly recommended to not use it at the first sign of a passing removal date. As an initial step, as a real estate professional you should maintain open communication with the buyer or seller to discover the reason for the delay and work towards solving the problem.

As a seller, it is important to remember that purchasing a property can be stressful and with a lot of moving parts making mistakes and missing deadlines may be unintentional. In some instances, it may even be out of their hands especially if it involves a lender or an appraiser.

Therefore, if a contingency date has come and gone choose empathy first towards the buyer or seller situation and the Notice to Perform as a last resort. This will help to ensure that the transaction continues to move forward in an amicable way without stirring up unnecessary strife.

When contingencies are removed, what does that mean for the buyer and seller?

It means that if the buyer does not close escrow, whether due to lender or unsatisfaction with the property, then the buyer may not be entitled to a return of buyer’s deposit.

What is a Contingency?

What Contingencies Are in My Purchase Contract? By: Sarah Vance

Does Your Purchase Contract Protect You?

To start we should answer the question, what is a contingency in real estate? It is a condition or action that must be met. The contingency clause essentially gives parties the right to back out of the contract under certain circumstances without legal consequences.

Contingencies for a real estate contract are put in place to protect the buyer when they enter into a purchase contract to ensure that before close of escrow, they are satisfied with all aspects and conditions of the property. In a standard purchase agreement, the following contingencies are the most common:

  • Loan contingency giving the buyer time to obtain financing for the purchase of the property.
  • Appraisal contingency protects the buyer by ensuring the property is valued at a minimum, specified amount.
  • Physical inspection/buyer’s investigations, also referred to as due diligence, gives buyer the right to have the home inspected within a specified time period.
  • Sale of buyer’s property which allows the buyer to place their home for sale so that the escrows may work in tandem with one another.

Sellers may also have contingencies in place such as:

  • Finding a replacement property
  • Closing on a replacement property

There are other contingencies that may apply if the buyers and sellers agree to those circumstances during negotiation period.

The contingency removal period (ie: the removal date) is negotiable between the buyer and seller before signing of the purchase agreement. For this reason, the shorter the contingency period is more favorable for the seller because the sale may move forward more quickly without the buyer having opportunity to withdraw from the contract. On the other hand, a longer contingency period is favorable for the buyer because they have more time to ensure the property is the right fit for them. 

Choosing the correct negotiation stance can be a tricky business when you are trying to bring two parties into a purchase agreement that is favorable to both sides. If you find yourself in need of new, or refreshed, negotiation techniques you may want to seek guidance from a real estate mentor. REeBroker Group has an amazing Mentor Program with a team that will assist you step-by-step in all thing’s transaction related including negotiation tactics for listing, purchase and services. For more information, check out their website here: https://reebroker.com/MentorshipOnlineAgreementForm.aspx.

Next week we’ll be discussing contingency removals and what that means for your real estate transaction.