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 that must successfully occur if the transaction is going 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 satisfied or met, and released or removed.

State laws can differ somewhat regarding the release of contingencies. Read your contract thoroughly or have a professional do so to find out if there are any variances in your particular location.

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.

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 selected. The time frame can be extended or shortened by 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 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 shortened or it can run to the close of escrow if the contract provides for a deviance.

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 literally on the day the transaction is supposed to close if the loan has been denied and the loan contingency remains in place until the close of escrow.

Contingencies for Other Inspections

With the exception of lead-based paint, most contracts give buyers 17 days to complete all other inspections, including a home inspection. Again, that time frame can be shortened or extended 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.

It's not unusual for buyers who are purchasing land to 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 and it therefore 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, such as a wet basement, dead squirrels in the attic, loss of structural integrity, or health and safety issues.

Sellers aren't obligated to honor these requests. They can refuse to make the repairs. The buyer is entitled to cancel the transaction in this case, or to renegotiate a mutually acceptable alternative or simply 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 provided that 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, 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, and many real estate agents neglect to monitor contingencies.

After Release

The buyer is obligated to move forward with the purchase after releasing all the contingencies in a contract. Otherwise, after signing a release of contingencies, the seller has the right to demand the buyer's earnest money deposit and may be entitled to liquidated damages if the buyer decides to cancel the contract.

The seller and buyer will have to settle their dispute either through arbitration or by filing a lawsuit if the parties can't agree to the disposition of the earnest money deposit in this case. 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 or difficult contingencies.

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