Orange County Information Center - General Questions

What is a contingency and how do I get one removed from my contract?

Most offers include a few contingency provisions. If you accept an offer with a contingency provision, you must understand what a contingency is and how you can get it removed.

A contingency is an event which must occur before the buyer or seller is obligated to proceed with the sale. For example, a contingency that often appears in a buyer’s offer is a financing contingency. A financing contingency obligates the buyer to use reasonable efforts to obtain the financing needed to purchase your home. However, if the buyer does not obtain financing within the timeframe specified in the offer (usually 17 days), the buyer is not obligated to proceed with the purchase of your home. In this situation, your home could fall out of the escrow and the sale would not be completed. If this occurs, you would also be required to return the buyer’s good faith deposit because the buyer was not obligated to purchase your home unless could the buyer obtained financing within 17 days.

As a seller, you will need the buyer to remove all of his or her contingencies before the buyer is obligated to proceed with the purchase of your home. The process by which you ask the buyer to remove a contingency is by making what is known as a written “demand for removal of contingencies.”

When you purchase a service package from O.C. Real Estate Advisors, a licensed real estate advisor will help you understand all of the buyer’s contingencies and assist you in making a demand for removal of contingencies.

Another contingency that is often included in a buyer’s offer is an inspection contingency. An inspection contingency gives the buyer the right to hire an inspector to determine whether your home needs any repairs. Generally, it is the buyer’s responsibility to pay for the home inspection. After the home inspection has been completed, you will receive a copy of the buyer’s inspection report which identifies any repairs that the inspector has recommended for your home.

If the home inspection report identifies any recommended repairs, it is generally up to you and the buyer to determine who will pay for the repairs. By law, as the seller, you are generally only obligated to pay for repairs to smoke detectors or the water heater. However, if there are other repairs that need to be made, and you decide that you do not want to pay for them, the buyer has the right to refuse to remove this contingency and the property may fall out of escrow.

A buyer may refuse to remove an inspection contingency if the repairs will be expensive. If the buyer refuses to remove the inspection contingency, he or she is not obligated to proceed with the purchase of your home, the sale will not be completed, and you must return the buyer’s good faith deposit. It is therefore in your best interest to consider making some or all of the repairs identified in the home inspection report or offer to credit the buyer with the cost of the repairs at the close of escrow. The latter option would allow the buyer to complete the repairs after your home has been sold.

You should also consider addressing the repair issue in your MLS listing by stating that your home is sold in an “As Is” condition. When you home is sold in an “As Is” condition, that lets the buyer know in advance that you will not agree to make any repairs to your home other than those repairs you are legally required to make, such as repairs to smoke detectors or the water heater. Once an inspection report has been issued, and you and the buyer have agreed who will pay for any repairs, you should send the buyer a written “demand for removal of contingencies.”

When you purchase a service package from O.C. Real Estate Advisors, a licensed real estate advisor will answer any questions you may have about the inspection contingency and help you prepare a demand for removal of the inspection contingency.

A buyer’s offer will generally contain a least one contingency that obligates the seller to perform an activity within a specified time frame. For example, a buyer’s offer will generally require the seller to hire a termite inspector to prepare a termite inspection report for your home. The offer usually specifies who will pay for the cost of any repairs that are needed as a result of any termite damage found during the inspection. The seller is generally obligated to pay for any existing termite damage and the buyer is generally obligated to pay for any work to prevent future termite damage, if the buyer wants this work to be performed.

Warmest Regards,

Peta Carley
Orange County Real Estate Advisor

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