Releasing Homebuyer Contingencies

What is a contingency release?

Closeup of a man's hands signing a contract with a fountain pen
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Most homebuyers can cancel signed contracts because most contracts contain contingencies—stated events. These must occur for the transaction to proceed to closing. Buyers are free to cancel until these contingencies are released or removed from the contract.

The purchase contract must specify how each contingency will be met, and released or removed.

All this might sound like a great deal to buyers, but sellers will usually go for an offer that contains fewer contingencies when several offers are on the table.

Key Takeaways

  • Home buying contracts can have varied contingencies. These include appraisals, loans, inspections, and selling another home.
  • If the buyer doesn't sign a release of contingencies in the time stated in the contract, the seller can cancel the contract.
  • The seller must typically deliver a "notice to perform" to the buyer. It gives them 48 to 72 hours to either act on or release a contingency.
  • After releasing contingencies, a buyer must move forward with the purchase. If not, the seller can demand the buyer's deposit and other damages.

Releasing the Appraisal Contingency

Purchase contracts give buyers 17 days to release an appraisal contingency in California, but this is the default option if nothing else is chosen. The time frame can be longer or shorter based on the terms of the contract.

The seller can cancel the contract if the buyer hasn't signed a release of contingencies by the end of this time. The seller must deliver to the buyer a Request for Buyer to Perform, which typically gives the buyer 48 to 72 hours to act. 

Buyers have other options if an appraisal comes in low.

Releasing the Loan Contingency

Many purchase contracts give buyers 21 days to release a loan contingency. Again, this is the default. The time frame can be shorter or it can run to the close of escrow if the contract permits.

The seller can cancel the contract at the end of that time if the buyer hasn't signed a release of contingencies. Again, the seller must typically deliver a notice to perform or similar document to the buyer, granting 48 to 72 hours for them to perform.

The buyer can walk away from the contract on the very day the transaction is to close if the loan has been denied. The loan contingency remains in place until the close of escrow.

State laws can differ somewhat as to the release of contingencies. Read your contract closely or have a professional do so to find out what applies to your region.

Contingencies for Other Inspections

Except for lead-based paint, most contracts give buyers 17 days to complete all other inspections, including a home inspection. Again, that time frame can be shorter or longer in the contract.

The seller can cancel the contract at the end of that time if the buyer hasn't signed a release of contingencies and the seller has delivered notice.

Buyers of land often ask for a contingency to obtain a permit for the right to build. Other homebuyers might make contracts contingent on being able to put in swimming pools. These contingencies should contain a time frame or action to release them.

The final walk-through before closing is not considered to be an inspection, so it isn't a contingency.

Deficiencies in the Home Inspection

A buyer can issue a "Request for Repair" to the seller if deficiencies are turned up in the home inspection report. These could be a wet basement, dead squirrels in the attic, loss of structural integrity, or health and safety issues.

Sellers don't have to honor these requests. They can refuse to make the repairs. In this case, the buyer can cancel the deal, renegotiate, or move forward with the transaction.

Releasing a Contingency to Sell

Sometimes buyers want to purchase a home before they've sold their existing home. They offer to buy the seller's home if they can sell their own property within a certain period of time.

Most sellers will agree to give the buyer a first-right-of-refusal period if and when the sellers receive another offer. That's if they even accept an offer contingent on selling at all. The buyers can either cancel the transaction or remove the contingency to sell if the sellers receive another offer and issue a request to perform.

Refusal to Sign a Release

Although state laws can differ, it's up to the seller in California to demand that the buyer perform if the buyer doesn't sign a release of contingencies within the specified time period. The contingencies stay in place and don't expire if the seller doesn't officially demand performance.

Not all sellers demand performance. Many real estate agents fail to monitor contingencies.

After Release

The buyer must move forward with the purchase after releasing all the contingencies in a contract. Otherwise, the seller has the right to demand the buyer's earnest money deposit. Sellers may also be entitled to liquidated damages if the buyer decides to cancel the contract.

The seller and buyer will have to settle their dispute through arbitration or by filing a lawsuit if the parties can't agree to the disposition of the earnest money deposit. The method of resolution will depend on the language in the contract and on state law.

Consult a real estate lawyer for more information and advice if you're a homebuyer or seller who's dealing with tricky contingencies.

At the time of writing, Elizabeth Weintraub, CalBRE # 00697006, is a Broker-Associate at Lyon Real Estate in Sacramento, California.