KNOW YOUR CONTRACT CONTINGENCIES: CALIFORNIA’S REAL ESTATE INSPECTION CONTINGENCY 14(B)(1)
“Buyer’s offer has no contingencies.” This phrase has become increasingly common in the Sacramento’s competitive real estate market, where buyers are looking for every advantage to stand out from the crowd. Whether you are the buyer or seller, it is important to know what contingencies are and where to find them in your contract.
In this three-part series, I will explain the typical real estate contingencies and help you identify them in your California real estate contract.
What Are Contingencies in Real Estate?
A contingency is a condition that must be fulfilled before the sale of a home can close. In California, these conditions are typically found in the buyer’s offer. The most common form we use to write an offer is California Association of Realtors(C.A.R.) Form RPA-CA.
Real estate contingencies typically fall underthree major categories: appraisal, home inspection and mortgage approval. Think of these contingencies as a buyer’s and seller’s safety net. If a home does not appraise at a certain value, if an inspection reveals a major problem, or if the buyer cannot obtain adequate financing, the parties can back out of the contract without penalty.
In addition to specifying contingencies, your contract will setspecific deadlines.For example, the buyer will have 17 days to complete inspections (see below). It will also state when and how notice of cancellation must be given and received.
California’s Inspection Contingency: 14(B)(1)
In California, the default inspection contingency gives the buyer a little more than two (2) weeks – 17 days – to complete all inspections.
C.A.R. Form RPA-CA, section 14(B)(1) reads:
BUYER HAS: 17 (or___) DaysAfter Acceptance, unless otherwise agreed in writing, to: (i)complete all Buyer Investigations; review all disclosures, reports, lease documents to be assumed by Buyer pursuant to paragraph 10A and other applicable information, which Buyer receives from Seller; and approve all matters affecting the Property; and(ii)Deliver to Seller Signed Copies of Statutory and Lead Disclosures and other disclosures Delivered by Seller in accordance with paragraph 10A.
If any major problems are found, a buyer may then ask the seller to make repairs or may request a monetary credit for repairs at closing – see section 14(B)(2). The seller, however, has no obligation to respond to either request.
Lifting The Buyer’s Inspection Contingency
After the agreed upon inspection period has passed, the seller must request that buyer lift their inspection contingency.If seller does not obtain a contingency removal, buyer’s inspection period remains in effect, “based on a remaining contingency.” See 14(B)(4). This means that technically buyer’s inspection contingency can remain in effect all the way through the deal — meaning buyer can back out and recover any earnest money deposited with escrow.
Sellers, your agent will likely send a “Notice of Buyer to Perform” (NBP) requesting that buyer either remove the contingency or back out of the contract. This will allow you to move on to other back-up offers if buyer fails to adhere to the agreed-upon inspection timeline.
Should I Write a No-Contingency Offer?
Well, that depends. Has your seller already had a professional inspection completed? What did the inspection reveal? Was the foundation adequately inspected? What about the roof? How old is the home? What updates have been recently done by the seller? Were permits obtained for any structural work?
I have represented Sacramento and Placer County buyers who successfully wrote offers with no contingencies and I have represented buyers whose succesfull offers included more contingencies than are typical. No home is the same and I think your offer should reflect your comfort with the home’s condition, your ability to obtain financing (or pay cash), and your overall risk tolerance.
I recommend that buyers do as much due diligence as possible before writing an offer. There is no substitute for being 100% confident in your offer before it is sent on to the seller. This will set the tone for a smooth transaction all the way to the closing table.
Author:Brandon McGill Phone: 916-519-4166 Dated: July 6th 2017 Views: 55 About Brandon: ...
View our latest blog posts in your RSS reader. Click here to access.
About eXp Realty California - Northern / Central Valley
Trust eXp Realty and our team of real estate agents to help you find homes for sale or to sell your current home. We recognize the level of service that the mobile consumer demands. You have information. You have dreams. We possess experience, integrity, and innovation. Together we create leverage to make your dreams a reality.
Moving into a new home is an exciting time, and you’re probably dayd
"Colleen was excellent at communicating with the seller and sending information back and forth. She was also very proactive in helping me chose a lender and staying up to date with the lender to mak e sure things progressed in a timely manner. She was very aware of the timing of all the deadlines throughout the process and kept things moving very efficiently. Colleen has been providing real estate service in the community for over 15 years and is a great choice for any buyer or seller, private home or commercial properties. I have several other friends who have also used Colleen's services and were very satisfied."