How To Prevent Contingencies From Destroying Your Real Estate Investment

Are you ready to become a homeowner for the first time? Or, maybe you are trying to sell a property from your portfolio? Either way, learning about contingencies helps you avoid crucial mistakes. Normally these are errors that can derail days' worth of negotiations. If you want everything to move smoothly during your next transaction, it's worth the time.


Top Home Buying Tips Regarding Contingencies

Have you ever had a contingency stop everything in its tracks? Nothing is more frustrating for the agent and/or the property owner. In order to learn how to stop this from happening, we must first define contingencies.


What Are Contingencies

Contingencies are a legal term for part of the real estate process. Once funds are in escrow, any contingencies in the real estate contract are put into effect.

They are effective conditions that set terms for when the buyer can back out of the deal.

Typically, it contains fine print on what happens to escrow funds if the deal were to be canceled. Several types of standard contingencies are inserted into contracts. However, custom contingencies are also possible.


Types of Contingencies

Now, we know contingencies are a legal condition. They set parameters for when contracts are cancelable. Typically, most contracts have at least three contingencies to protect the buyer.

Each of these is part of the standard California Residential Purchase Agreement.


Inspection:
The dreaded inspection contingency defines the buyer's rights regarding investigations. They can conduct physical inspections and request certain documentation. The standard timeline gives the buyers 17 days to exercise these rights.


Appraisal:
Appraisal contingencies are only applicable to mortgage-backed real estate transactions. The lender must send appraisers to the property. Then, appraisers assess the property's market value. Buyers may be allowed to cancel, but, only if the appraiser does not value the home highly enough for the mortgage.


Loan:
Loan contingencies are another contingency that is only applied to mortgage-backed transactions. Buyers can cancel the purchase of a home if they are unable to secure mortgage approval within 21 days.


Is There a Timeline on Contingencies?

Contingencies, by default, are given between 17 and 21 days. Most real estate negotiations will use these timelines as part of the negotiation. Thus, it isn't uncommon to see these extended or shortened to sweeten the deal.


Between 17-21 Days Is the Industry Standard:
17 to 21 days is the industry standard. But, this only applies to the previously mentioned three contingencies contained within the CRPA. Any other contingencies will be custom, so then you can expect the timelines to vary for each proposal.


Can I Get Rid of Contingencies?

In California, active contingency removal is the process you use to eliminate contingencies. Buyers must remove the contingencies from the contract if this is enforced. They must provide a contingency removal form for each contingency. On the off chance a buyer cancels after you use the active contingency removal process, you get to keep all of their deposit.


Waiving Standard Contingency Inclusion

It is possible to have the three standard contingencies removed from a contract. The most common example will be if there is no mortgage involved with the sale of the property. Two of the standard contingencies apply to mortgage-backed transactions. Therefore, you can waive them on cash sales.


What Is a Notice to Buyer to Perform?

A notice to perform is put in place once the deadline for your contract expires. If the buyer fails to remove the contingencies, the seller of the property gets the right to issue a notice to the buyer to perform. Then, the buyer is given 48 hours to remove the contingency in writing or to cancel the transaction. If the timeline collapses, the seller can unilaterally cancel the contract.


Custom Contingencies

There are a few contingencies used by industry professionals relatively often. When you own a home that must be sold before you can buy a new property, you can use a contingency to plan for that. In the industry, this is called a contingency for the sale of the buyer's property. There are other custom contingencies you can use as well.

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