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Contingencies, sometimes called conditions, are there to protect the California buyer. In case there is a problem or if something goes wrong with the home, the appraisal or the loan, the buyer can walk away within a specified period of time. YOU, the seller, can control the amount of time the buyer is allowed to complete these contingencies.
There are three main contingencies which expire after 17 days once an offer is accepted. The first is the Inspection Contingency, which is self-explanatory. A buyer has 17 days in which to perform all inspections. If within that timeframe, something is wrong with the house, such as a poor foundation, mold in the walls or just costly repairs, a buyer can walk away. He or she simply signs a form called Cancellation of Contract, Release of Deposit and Joint Escrow Instructions. Similarly, if the loan isn’t approved, the contract is cancelled and buyer walks away. With an appraisal contingency, if the property’s appraisal comes in lower than the purchase price, a buyer has 3 options: he/she (1.) can walk away, (2.) can negotiate a lower purchase price with you or (3.) can deposit more money (the difference between the purchase price and the appraised value) to satisfy the lender. Remember, the loan is based on the appraised value!
There are other lesser contingencies, which generally don’t cause challenges to the sale and have different periods-of-cancellation options. They are: • Reports/Disclosures • Condominium or PUD Disclosures • Title’s Preliminary Report on the home • Sale of buyer’s property before buying another.
It’s important that the contingencies are removed in a timely manner by YOU, the seller. If they are not removed on time, your agent can send a Notice to Perform, giving the buyers a fixed number of hours to remove them. If the buyers really want to buy your home, they will remove the contingencies in a timely manner. If they don’t want to buy, move on to your backup offer.