The Contingency Removal Process

Once the offer is accepted, there are several contingencies in the contract that give the buyer the opportunity to review information or take specific actions within given time frames.  Note that contingencies are removed in writing, and it is essential to meet the deadlines specified for each contingency in the purchase agreement.

Typical purchase agreements contain the following contingencies for the buyer:

  • Seller Disclosure Statements. The contract is contingent upon they buyer’s approval of the property disclosure statements as prepared and signed by the seller.  There is an automatic 3 day right of rescission when the documents are received.
  • Inspection contingency. We have the opportunity to hire qualified inspection companies to determine the condition of the property.  This includes, but is not limited to, termite inspections, general home inspections, chimney inspections, pool/spa inspections, roof inspections, and others as needed.  Once we have had the property inspected and have reviewed the inspection reports, we may develop a Buyer Request for Repairs.  Note that depending on whether the offer was written for an “As Is” purchase – repairs are usually negotiable, and once we reach agreement on any requested repairs, the inspection contingency is removed.
  • Geologic & Environmental and California Tax Reports. These reports, prepared by an independent Geologist, show whether the property is located in Earthquake zones, fire zones, flood zones, industrial use zones, and other zones as defined by the State.  It will also show you the current property tax assessment rate for this property, along with any additional assessments that are paid as part of the property taxes.  All of these documents should be reviewed carefully. These documents are generally due to be removed as a contingency when your inspection contingency removal is due.
  • Appraisal contingency. The contract may be contingent upon the property appraising at the sales price.  If the appraisal falls short of the sales price, you are not obligated to proceed with the purchase.  It is vital that the lender order the appraisal as soon as possible after we have a fully-ratified purchase contract in order to meet the contingency removal date.
  • Loan contingency. The contract is likely contingent upon the buyer’s ability to obtain a loan under the terms indicated in the purchase agreement.  You are required to complete a loan application with the lender ASAP, and provide whatever information the lender needs to complete your loan request.  Once the loan is approved, you need to confirm with the lender that you can with confidence remove your loan contingency, and that there are no outstanding conditions of the approval that could prevent you from closing escrow.
  • Preliminary Title Report. The contract is also contingent upon your review and approval of the Preliminary Title report as provided by the Title Company.  This report shows all matters of public record that are recorded against the property, including easements, common maintenance agreements, liens, etc.  If there are CC & R’s on the property (recorded Conditions, Covenants, and Restrictions) you have the right to review them to see if there are any restrictions that you object to.
  • HOA Documents (if applicable). Lastly, if the property has a Homeowner’s Association, then the purchase is contingent upon your review and acceptance of the Homeowner’s Association documents.  These documents will typically include the Budget, By Laws, Articles of Incorporation, Financials, and Minutes from past meetings.  The minutes are usually the most important of these items, as they are a record of issues that have been raised at the Homeowner Association meetings.

Once all contingencies are removed, you are in effect saying you understand and accept the property in its current condition (subject to any agreed repairs by the seller) and are going to close escrow.  At that point, your deposit is theoretically at risk, so any failure to close escrow on your part might lead to losing all or part of your deposit.