What’s a contingency period?
In Real Estate, A Contingency period is the time frame in which a home buyer has to preform on a specific contractual item. In example, a buyer may have 17 days to inspect the home to their satisfaction, and either move forward with the purchase, exit out of the purchase, request seller repairs, or request seller credits. The job of a contingency is to keep the buyer protected by allowing the buyer to exit out of the contract without any ramifications. Once a contingency is removed, the buyer can no longer back out of the purchase pursuant to the contingency the buyer removed. Once a contingency is removed, it’s removed.
By default and unless otherwise specified by the seller and buyer on the purchase contract, a 17 day period is automatically set for both the Appraisal and Property inspection contingencies, and a 21 day loan contingency period on a California purchase agreement. In other cases, such as a competitive market, buyers may submit offers with shorter contingency periods.
Can I change the contingency period IN escrow?
The most common way to shorten or extend a contingency period is to create a contingency period addendum and have all parties sign off on it before it expires, in escrow.
What happens if the contingency period passed but the buyer never removed the contingency?
For a buyer to remove their contingency, they must sign off on a contingency removal document. If a buyer doesn’t remove their contingency when it’s due and in writing, the seller can furnish the buyer with a NTB (Notice of buyer to preform document). A notice of buyer to preform comes with a deadline, usually 2 days, for the buyer to remove their contingency. If the buyer does not remove their contingency (Respond to the NTB document), the seller has grounds to cancel the contract. In that case, the buyer should retain their earnest money deposit, as they are protected by a contingency they have never removed in writing, even if it passed. To retrieve the earnest money deposit, mutual cancellation signatures will be required by sellers and buyers, to be provided to escrow. Then, escrow can wire the earnest deposit back to the buyers, or hand them a check.
Can escrow close without a buyer ever removing their contingencies?
Short answer is yes. If for any reason the buyer doesn’t remove their contingency, escrow can still close successfully.
Disclaimer: This article is provided for informational purposes and should not be relied upon as legal advice during a real estate transaction. Please speak to your Real Estate agent or attorney for any advice. If you would like to work with a Skyworks Real Estate agent, please contact us directly.