Buyers and sellers have signed the contract. The “Sale Pending” rider is affixed to the yard sign. The status of the home no longer shows as “Active” on the Multiple Listing Service.
So is the property really sold? Not so fast.
Before calling the movers there may be contingencies spelled out in the contract that have to be removed.
Contingencies are conditions that must be met in order for a contract to be binding, and they are a part of every real estate contract. But certain kinds of contingencies have been uncommon in Bay Area real estate the last few years, and are seen more often now.
Certain contingencies are standard:
• The last party to sign must send a copy to the other parties or their agent, who must then initial “Acceptance” of the contract.
• The buyers must “open escrow” by depositing an agreed-to sum called “earnest money” with the escrow officer.
• The sellers must provide signed copies of all statutory disclosures to the buyers, which the buyers must also sign. These include items such as the Lead-Based Paint Advisory, the Marketing Advisory, and other items not specific to the property, as well as the Preliminary Title Report, the Seller Property Questionnaire and other disclosures that are specific to the property. Sometimes buyers receive and sign these disclosures before making an offer.
• All local point-of-sale requirements must be met. For example, Livermore requires sellers to provide the buyers with a history of all permits on the property in the form of a City of Livermore Permits Report.
If you don’t meet these requirements, you don’t have a deal. So, while they may not be referred to as contingencies, the transaction is, in fact, contingent on these provisions being met.
Other contingencies might be points of negotiation:
• Buyers have a certain period of time in which to inspect the physical condition of the property as well as its location. They may choose to hire professional inspectors to provide reports. They may wish to investigate school scores, traffic patterns, crime statistics, and other matters relevant to the neighborhood. The default in the California Association of Realtors purchase agreement allows 17 days for these inspections.
• Most buyers require loans to purchase property, so they may have a loan contingency in the contract. The default period for this is 21 days.
• If they are getting a loan – or maybe even if they are not – the buyers may order an appraisal. The contingency for the appraisal is generally shorter than for the loan, perhaps 17 days.
If the home is part of a Home Owners’ Association, there may be separate contingencies for HOA documents.
In a fast-paced sellers’ market, in which there are too few homes available, some buyers will shorten or even waive some contingencies. For example, in our area we frequently see inspection contingency periods of 10 days or less, and loan and appraisal contingencies of about two weeks.
We have also seen seller contingencies that provide time for them to purchase a new home. This makes sense. The folks selling the home you want to purchase are likely competing against other buyers in trying to get their offer accepted on a replacement property.
In this case, the sellers make the contract on their home contingent on getting into contract on a home of their choice using a document called “Sellers Purchase of Replacement Property” or SPRP.
The form can be written so that the purchase agreement is contingent on the seller finding a replacement property or closing on that transaction. As with any agreement, timelines are spelled out with options as to what happens if either or both transaction is delayed.
In this case, if the seller fails to meet the terms of this contingency, the buyer has the right to cancel.
Less common in recent years have been buyer contingencies to sell their current homes. When buyers are competing in multiple-offer situations, they are less likely to structure their offer this way for fear sellers won’t accept it. Most of the time, they would be right.
But with a slowing market, sellers – and their agents – are more open to considering such contingencies, especially if the buyer’s property is already in contract and the deal seems solid.
Ideally the buyers’ Realtor will include as much information as possible about the sale of their home, including a copy of the MLS sheet indicating it is in contract, a seller net sheet showing how much the buyers will realize from the sale of their property, as well as contact information for their buyer’s agent and loan officer.
The point is to give the sellers confidence in their ability to close on the sale of the buyers’ home and to complete the purchase of the sellers’ property in a timely fashion.
If, as expected, Bay Area real estate continues to move toward a more balanced market, we are likely to see a lot more “Contingency for Sale of Buyers Property” forms (COP) attached to offers.
If you are thinking about buying or selling a home – with or without such contingencies – contact your local Realtor today.
Cher Wollard is a Realtor with Berkshire Hathaway Home Services Drysdale Properties.