A contingency is a condition in a California purchase agreement that must be met or removed before the sale goes forward. It gives the buyer a set period to investigate the property, the appraisal and the loan, and to cancel or renegotiate, usually with the deposit returned, if a condition is not satisfied.
What are the most common buyer contingencies?
The three most common are the inspection, appraisal and loan contingencies.
- Inspection contingency: also called the investigation contingency. It lets the buyer inspect the property, review reports and disclosures, and decide whether to proceed, request repairs or a credit, or cancel.
- Appraisal contingency: applies if the appraisal comes in below the purchase price. The buyer can renegotiate, bring more cash or cancel.
- Loan contingency: protects the buyer if the loan is not approved despite a good-faith effort to obtain it.
Purchase agreements commonly include review periods for the title report, seller disclosures and homeowners association documents as well.
How long do contingency periods last?
The periods are set in the purchase agreement. The standard forms used in California include default time frames, and the buyer and seller can negotiate shorter or longer ones in the offer. Because forms are revised from time to time and every contract can be different, read the dates in your own agreement and ask your agent to calendar each deadline at the start of escrow. Shorter periods can make an offer more attractive to a seller, but they leave less time for inspections and loan approval.
What is a sale-of-buyer’s-property contingency?
It makes the purchase dependent on the buyer selling a home they already own. It is used when the buyer needs the proceeds from that sale to complete the new purchase. Sellers often view it as added risk because the closing depends on a second transaction, so it is usually documented in a separate addendum that spells out deadlines and what happens if the seller receives another offer. Buyers in this position can also ask a lender about other ways to bridge the two transactions.
How are contingencies removed?
Under the purchase agreement commonly used in California, a buyer removes a contingency in writing by signing a contingency removal form. Contingencies generally do not disappear on their own when the deadline passes. If the buyer has not removed a contingency on time, the seller can deliver a written notice demanding that the buyer perform, and may be able to cancel if the buyer still does not act. Once a contingency is removed, the buyer gives up the right to cancel for that reason, and the deposit may be at risk if the buyer later backs out.
Should I waive contingencies to compete?
Waiving or shortening contingencies can strengthen an offer, but it shifts risk to you. Without an inspection contingency you may be committed to a home with problems you did not know about. Without appraisal or loan contingencies you may need extra cash, or risk your deposit, if financing falls short. This matters with any property and especially with rural acreage in places such as De Luz or Temecula Wine Country, where wells, septic systems and access need review. Discuss the tradeoffs with your agent and lender, and consult a real estate attorney for legal questions about your contract. You can also contact Aimee with questions about writing an offer.
Frequently Asked Questions
Do I get my deposit back if I cancel under a contingency?
If you cancel properly and on time under a contingency that is still in place, the deposit is generally returned to you. Both parties usually sign cancellation instructions before escrow releases the funds. Ask your agent or an attorney about your specific contract.
What is the difference between a contingent and a pending listing?
Usage varies by multiple listing service. Contingent usually means an offer has been accepted and contingencies are still open, while pending usually means the sale is moving toward closing.
Can a seller have contingencies?
Yes. A seller can make the sale contingent on something such as finding a replacement home. Any seller contingency must be written into the agreement or an addendum.
Can I ask for repairs after the inspection?
Yes. During the inspection contingency period you can request repairs, a credit or a price change. The seller can agree, decline or counter, and you then decide whether to proceed.
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Aimee Ghafouri is a real estate agent based in Temecula who grew up in Murrieta and works with buyers, sellers and investors across the Temecula Valley and southwest Riverside County.
Aimee Ghafouri, 951 Properties, CAL DRE #02193341. This page is general information, not legal, tax or financial advice. Equal Housing Opportunity.
