Real Estate Contingency in California

In California real estate, contingencies are conditions that are often included in a purchase agreement that must be fulfilled before the sale becomes final. These clauses offer protection by giving either the buyer or seller an option to cancel or renegotiate if certain requirements aren’t met.

A real estate contingency is often essential in California home sales and real estate contracts, as it offers a structured way for both parties to manage risk and ensure transparency. Examples of common contingencies include contingencies for financing approval, home inspections, or property appraisals.

According to California Civil Code Section 1436, a contractual obligation can be conditional, meaning it only takes effect once specific terms are met. For instance, a buyer might include a mortgage contingency in a real estate purchase agreement, which allows them to exit the agreement if they can’t secure a loan by a stated deadline.

Each contingency generally includes a timeline, which is called a contingency period, by which it must be satisfied or waived. If the buyer doesn’t remove the contingency in writing by the deadline, then they can typically cancel the deal without penalty. However, once contingencies have been lifted, the buyer is expected to move forward with the purchase, or they may risk losing their deposit.

What Are Some Common Examples of Real Estate Contingencies in California?

As mentioned above, contingencies are standard clauses in purchase agreements that allow buyers (and sometimes sellers) to cancel or renegotiate a deal if certain conditions aren’t met. These safeguards are especially important in a competitive market such as California, where buyers want to protect themselves from unexpected issues without risking their deposit.

The following is a list of some of the most common contingencies found in California home purchase contracts:

• Inspection Contingency: This gives the buyer time to conduct a home inspection and back out or renegotiate if major defects are discovered
• Appraisal Contingency: This protects the buyer if the property appraises for less than the agreed purchase price, which is important when financing is involved
• Financing (Loan) Contingency: This allows the buyer to cancel the contract if they’re unable to secure a mortgage within a specified timeframe
• Sale of Buyer’s Property Contingency: This makes the purchase dependent on the buyer selling their current home first
• Title Contingency: This ensures the seller can deliver clear title to the property, free of liens or legal disputes
• HOA Document Review Contingency: This gives buyers time to review homeowners association rules and financials before committing
• Insurance Contingency: This lets the buyer cancel if they’re unable to obtain satisfactory homeowners insurance

It is important to note that each contingency typically comes with a deadline, and buyers must remove them in writing to move forward. If they don’t, they can usually walk away from the deal without losing their earnest money.

If you should have any questions regarding a contingency or whether or not one is good for your specific situation, then it is recommended to set up a legal consultation in California with California lawyers knowledgeable in such contingencies. They can also answer any questions you may have regarding how contingencies may affect escrow or the mortgage loan.

What Are the Common Contract Contingency Issues a Client May Experience in California?

As can be seen, contract contingencies are essential safeguards in real estate transactions. However, they can also become sources of stress or conflict if not properly managed. Buyers and sellers alike may encounter issues when contingencies are misunderstood, poorly timed, or not clearly communicated. All of these problems can delay closings, lead to disputes, or even cause deals to fall apart.

Examples of some of the most common contingency-related issues clients may face include:

• Missed Contingency Deadlines: Each contingency, such as those for loan approval, inspections, or appraisal, has a set timeframe, which is typically 17 days, unless otherwise negotiated
  • If the buyer doesn’t remove a contingency in writing by the deadline, the seller may issue a Notice to Perform, giving the buyer 48 hours to comply. Then, if the buyer still doesn’t act, the seller can cancel the contract.
• Insufficient or Rushed Inspections: Buyers sometimes feel pressured to move quickly, especially in competitive markets, such as California. However, skipping inspections or failing to hire qualified professionals can result in undiscovered issues, such as foundation cracks, mold, or outdated wiring, which could become expensive surprises after the deal is finalized
• Appraisal Shortfalls: If the lender’s appraisal comes in lower than the agreed upon purchase price and the buyer has already waived or removed the appraisal contingency, then they may be forced to cover the gap in cash or risk losing their earnest money if they walk away
• Loan Denial After Contingency Removal: Even with pre-approval, a buyer’s financing is not guaranteed. As such, if the loan falls through after the loan contingency is waived or expired, the buyer might be unable to close and could forfeit their deposit unless another contingency offers protection
• Poorly Worded Contingency Language: Ambiguity in contingency clauses can create confusion
  • For example, if a repair request or performance condition is not clearly defined, it may be unclear whether the requirement has been satisfied, potentially triggering disputes
• Failure to Officially Remove Contingencies: California requires contingencies to be removed in writing, which means simply letting the time expire doesn’t automatically waive them
  • If a buyer doesn’t formally remove contingencies, it can stall the transaction until the seller issues a notice and possibly leads to cancellation.
• Unexpected Disclosures or HOA Concerns: If the seller or homeowners association (“HOA”) provides troubling disclosures late in the process, such as pending litigation, large special assessments, or restrictive rules, the buyer may feel blindsided, especially if relevant contingencies have already been lifted.

Understanding all of the above pitfalls, and working closely with a knowledgeable real estate agent or California contract lawyer can help clients navigate contingencies with confidence and avoid costly missteps down the road.

Do I Need an Attorney for Help With Real Estate Contract Contingencies?

If you are having any issue related to real estate contract contingencies, then it is recommended to immediately consult with an experienced California contract lawyer. LegalMatch can assist you with locating a California contract attorney near you who handles cases similar to the issues you may be facing.

Although you’re not legally required to hire an attorney for real estate contingencies in California, having one can be incredibly helpful, especially in complex or high stakes transactions. As can be seen, contingencies often require a very nuanced understanding of contract law and real estate law.

Further, contingencies are legally binding conditions in a purchase agreement, and if they’re misunderstood or mishandled, they can lead to disputes, financial loss, or even litigation. An experienced real estate attorney will be able review contingency clauses to ensure they’re clearly written and protect your interests.

They can also help you negotiate terms, interpret inspection or appraisal results, and make sure you meet all legal deadlines, such as the requirement to remove contingencies in writing, as outlined in California’s standard real estate forms. Because these conditions can affect whether a deal moves forward or falls apart, legal guidance can give you peace of mind and help you avoid costly mistakes.

Further, should you encounter an issue that results in you suffering damages, then a real estate lawyer can also file a private civil lawsuit on your behalf. They will then be able to help you gather essential documentation to support your claim. Finally, they will also be able to represent you at any in person court proceedings, as needed.