One of my favorite things to do is watch the reaction a first time buyer has when I hand them the keys to their new home. Seeing the absolute joy it brings them means the world to me. I bought my first little loft when I was about 26 years old. I was so nervous something wouldn’t work out and I’d end up not getting it. I try and remember how nervous I felt through the process when I’m helping my first timer clients…granted, I have a business degree IN real estate! I can only imagine how hectic it must feel if everything i’m saying is in a completely new language. This is why I decided to give some insight in layman’s terms about contingencies. 

Here’s what you need to know:

  1. The California Residential Purchase Agreement- AKA “RPA” or “the contract”. It’s full of lots of legal language but it’s meant to protect you. California is a very buyer friendly state. There are multiple contingencies in there that you must actively remove or else your protection remains in tact. 
  2. Most common contingencies: Inspection, Appraisal and Loan. 
    • Inspection: You 100% get to look “under the hood” and make sure you are completely comfortable with the condition of the home before removing the inspection contingency. I ALWAYS recommend getting an inspection from a certified professional. Yes, there is a timeframe on the contract for when this needs to be complete, but as I said in #1, no signature from you, contingency stays. 
    • Appraisal: Typically your lender will send someone to do an appraisal on the home and determine its value. They do this to protect their investment but the actual contingency is to make sure you don’t overpay for a home. If it “doesn’t appraise”, you can negotiate a lower purchase price. It if appraises higher than what you are buying it for, remove that contingency confidently knowing you already made money on your house! You got a good deal! 
    • Loan: This one is exactly how it seems, if for some wild reason interest rates sky rocket or something drastic changes at work or with your loan and you can no longer afford this mortgage, you get an out. This typically doesn’t get removed until your lender has given the “all clear” and the loan has final approval (towards the end of the transaction). 
  3. What happens if you miss the contingency due date? Say it with me: the contingency remains in tact. This is where communication is key. I have been on both ends of this and I’ve found the best way to handle it is to just have a conversation with my counterpart. The goal is always to stay within the timeline but there can be tons of reasons when this might happen and many of them are not a big deal. The seller will understand if you need a little extra time. No need to panic, let’s update the other side as to why, and get back on track. At the end of the day, it’s my job to protect you as a client. If we are not ready, we are not ready. I’ll smooth things over on the other side and work on giving you a little more time. 
  4. Do I lose my deposit if I miss the contingency due date? NO WAY. That’s why these contingencies protect you. When would I lose my deposit? You could lose it, for example, if you actively remove all contingencies and then decide you don’t want to buy that home. That means at least you had to actively sign 3 contingency documents and would have been in the thick of this for about 3 weeks. This can happen, but knowing what you now know from reading above, you really wouldn’t be blindsided by it, you would have probably made that decision consciously. Either way, I like to be extra clear about when the “point of no return” is happening to make extra certain. Remember, this is actually a really exciting time, it means: I’M ALMOST THERE!
  5. Notice to Perform. This is where the seller (remember them?) get a chance to strongly suggest you hurry up. Don’t panic, these usually get sent when due dates are missed and sellers feel uneasy their home is tied up in escrow with a lukewarm buyer. It’s pretty much their only active measure of getting an out or nudging you to hurry up. Technically it states that after the notice to perform time period (about 3 business days), they can cancel if they want. I’ve received these and i’ve sent these, we’ve all survived. Just another thing you should know about and understand what they mean. 

At the end of the day, I want to be the one to take on the worry of time periods and notices, but the smoothest home purchases are the ones in which we both understand the process and take the mystery out of it for my first timers. When it’s all said and done, you should feel happy and excited of all that you have accomplished, and that’s my goal for you as well!