The importance of the contingency removal date
When a buyer and seller agree on an offer, the buyer effectively has an option to purchase the property, subject to their satisfaction of various contingencies. Once the buyer removes contingencies through the delivery of a contingency removal form in California, or passing a contingency date in Florida, the option turns into a binding commitment.
Contract attorneys often point out that an offer to purchase real estate isn’t literally an option. Though they are right, in practice, an offer very much resembles an option. For this reason, the shorter the contingency period, the better for the seller because the sale has the opportunity to move forward more quickly. Conversely, the longer the contingency period, the better for the buyer because they have more time to make sure the house they're pursuing is a good fit for them.
For this reason, the shorter the contingency period, the better for the seller because the sale has the opportunity to move forward more quickly. Conversely, the longer the contingency period, the better for the buyer because they have more time to make sure the house they're pursuing is a good fit for them.
Differences per state
With the exception of California (see below), in all other states that Home Bay is in thus far (Colorado, Florida, Georgia, Illinois and Texas) the passage of the date itself removes the contingency.
Terminology also varies in each state. For instance in Texas they do not use the term "Inspection Contingency" rather they use term "Option Period" referring to the buyer's right to terminate during the option period. A buyer typically pays the seller a non-refundable fee for the option period as well. The fee is typically around $100 but can vary.
In Florida they refer to the contingency as a "Inspection Period".
In Georgia, they refer to the contingency as a "Inspection and Due Diligence Period". There is an Option Payment for the Due Diligence Period that defaults in the contact to $10.
Details on contingency removal in California
In California, the contingency removal date is typically 17 days from acceptance. Acceptance occurs on the date that the buyer and seller agree on offer terms, contingencies included. As mentioned at the beginning of this post, there are a number of different contingencies that are present in most real estate offers. One of the most common is called a loan contingency. This is the clause that states your buyer's offer is contingent on being able to secure financing for your house. It's quite common for a loan contingency to extend beyond than 17 days and for it to have a separate removal date.
If certain criteria are met, it's also possible to have a contingency period that's less than 17 days.
You can have a shorter contingency period if:
- The seller completes all disclosures prior to listing
- The seller has a general home inspection prior to listing
- The seller shares a completed disclosure packet and an inspection report with the buyer before the buyer submits an offer
California's contingency removal form
In California, the contingency removal date itself is not what actually removes contingencies. Rather, it's a buyer’s submission of the contingency removal form. If the contingency removal date is March 1, 2015 and no form has been submitted, that day can come and go and contingencies will still exist. Contingencies will only be removed when the buyer submits the removal form; and that can happen before, on or after the removal date. Once the removal form is submitted, the sale can move forward.
Essentially, in California, the removal date can be thought of as the deadline for buyer to submit the removal form. If the buyer fails to submit the form by the date outlined in the contract, then the seller can take steps related to a buyer breach. This can include serving a notice to perform or seeking to cancel escrow.
Do you have questions regarding the contingency removal date and form? Ask us.