As mentioned previously, once your offer is accepted, there may be several contingencies in the contract that give the buyer the opportunity to review information or take specific actions within a given timeframe: each of the possible contingencies is outlined below.
Whether or not there are contingencies in an offer really depends on what type of market your area is in. If we are experiencing a Buyers’ Market, the offer(s) you receive will usually have multiple contingencies. If we are in a Sellers’ Market, there will likely be few to zero contingencies.
Contingencies are removed in writing, and it is essential to meet the deadlines specified for each contingency in the purchase agreement.
Typical purchase agreements may contain the following contingencies for the buyer:
- Seller Disclosure Statements. The contract is contingent upon the 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. As discussed in a prior article, the buyer has the opportunity to hire inspection companies to determine the condition of the property. This includes, but is not limited to, termite/past inspections, general home inspections, chimney inspections, pool/spa inspections, roof inspections, and others as needed. Once they’ve had the property inspected to their satisfaction and have reviewed the inspection reports, they may come back with a Buyer Request for Repairs. Unless the offer was written for an “As Is” purchase, repairs are usually negotiable. 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 also shows the current property tax assessment rate for the property, along with any additional assessments that are paid as part of the property taxes. This contingency is generally due to be lifted at the same time the 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, the buyer is not obligated to proceed with the purchase. It is vital that the lender orders the appraisal as soon as possible after we have a fully ratified purchase contract in order to meet the appraisal contingency removal date and keep the loan on track.
- Loan contingency. Unless it is an all-cash offer, the contract is likely contingent upon the buyer’s ability to obtain a loan under the terms indicated in the purchase agreement. The buyer is required to complete a loan application with the lender immediately, providing whatever information the lender requires to complete their loan request. Once the loan is approved and confirmed by the lender, the loan contingency can be removed, provided there are no outstanding conditions of the approval that could prevent escrow from closing.
- Preliminary Title Report. The contract is also contingent upon the buyer’s review and approval of the Preliminary Title Report. Provided by the title company, this report shows all documents of public record that are attached to the property, including easements, common maintenance agreements, liens, etc. If there are CC & R’s (recorded Conditions, Covenants, and Restrictions) on the property, the buyer has the right to review them to see if there are any restrictions to which they object.
- HOA Documents (if applicable). Lastly, if the property has a Homeowner’s Association, then the purchase is contingent upon the buyer’s review and acceptance of the Homeowner’s Association documents. These documents will typically include the Budget, By Laws, Articles of Incorporation, Restrictions, 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 of the possible contingencies have been lifted, you can feel secure that the escrow process and the sale of your property will proceed. If your home has been staged, this is also when we will have all of the staged furnishings and other items removed.
Now that we know the sale is going to proceed, it is time to put the close of escrow date on your calendar and begin necessary preparations!
