Contingencies Explained

Contingencies are conditions in a purchase contract that must be satisfied for the sale to proceed. They protect the buyer but can add uncertainty for sellers. Understanding them helps you evaluate offers and negotiate effectively.

Inspection Contingency

What It Is

The buyer has a specified period (typically 10-17 days) to have the home professionally inspected and review the findings.

What Can Happen

After the inspection, the buyer can:

1. Accept the property as-is and remove the contingency
2. Request repairs or credits based on findings
3. Cancel the contract if issues are significant enough

For Sellers

This is often where negotiations get real. Inspection findings lead to "Request for Repairs" documents where buyers ask for items to be addressed.

You can:

• Agree to make repairs
• Offer a credit instead
• Decline and risk the buyer canceling
• Negotiate a middle ground

Not every inspection finding is a valid repair request. Cosmetic issues and normal wear are different from safety concerns or major defects.

Financing Contingency

What It Is

The sale is contingent on the buyer obtaining their mortgage loan. The contingency period allows time for underwriting and final approval.

What Can Go Wrong

Even pre-approved buyers can have financing fall through due to:

• Job loss or change
• New debt or credit issues
• Property not meeting lender requirements
• Appraisal issues
• Documentation problems

For Sellers

A financed offer always carries some risk. The strength of the buyer's pre-approval, their down payment amount, and their lender's reputation all factor into how likely financing is to succeed.

Cash offers eliminate this contingency entirely.

Appraisal Contingency

What It Is

The sale is contingent on the home appraising at or above the purchase price. The lender requires this to ensure they're not lending more than the property is worth.

What Can Happen

If the appraisal comes in low:

1. Buyer pays the difference in cash
2. Seller lowers the price to appraised value
3. Both split the difference
4. Buyer cancels the contract

For Sellers

In competitive markets, buyers sometimes waive appraisal contingencies or agree to cover gaps. This shifts the risk but also signals a committed buyer.

If you're priced correctly based on recent comparable sales, appraisal issues are less likely.

Other Contingencies

Home Sale Contingency

Buyer must sell their current home before purchasing yours. This adds significant uncertainty—now you're dependent on two transactions closing.

HOA Document Review

Buyer has time to review HOA documents and can cancel if they find unacceptable terms or issues.

Title Contingency

Sale is contingent on clear title. This is standard and protects both parties.

Contingency Timelines

California uses specific contingency periods spelled out in the purchase agreement:

• Inspection: Typically 17 days
• Appraisal: Typically 17 days
• Loan: Typically 21 days

These are negotiable. Shorter periods benefit sellers; longer periods benefit buyers.

Evaluating Contingent Offers

When reviewing offers, consider:

• Which contingencies are included?
• How long are the contingency periods?
• How likely is each contingency to be satisfied?
• What's your backup plan if a contingency isn't removed?

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Navigating contingencies in an offer? Contact Greg Franklin or call (559) 816-7780 to discuss strategy.