Q: Marsha, I am currently under contract to sell my house. The buyer had certain contingencies for items such as a home inspection and getting her loan. The time for her to remove these contingencies has come and gone. I thought our contract would automatically cancel, but my Realtor tells me we have to nudge her to remove contingencies. Can you explain what is going on here?
A: Great question! As you know, contingencies are conditions of the purchase contract that must be met and fulfilled during a home purchase. The buyer’s contingencies are typically obtaining a loan, having the property appraised for the purchase price, and a physical inspection of the property. However, there can be any number of contingencies. The buyer, for example, may have a contingency that states they must sell their current house in order to purchase the new one.
Sellers may also have contingencies. If the seller wants to do a 1031 exchange on a rental property, he’ll want a contingency that the buyer will cooperate with his exchange. Or the seller may make the sale contingent on him finding a replacement home.
There are default timeframes for each contingency in the Residential Purchase Agreement (RPA). They are usually 17 days for an appraisal and home inspection and 21 days for loan approval. The seller will have seven days in which to provide disclosures. As with everything in real estate, these timeframes are negotiable. In today’s market, a buyer may shorten the timeframes to make the offer more attractive.
So what if you are under contract and your buyer’s contingency release date comes and goes? Your agent is correct that the contract does not automatically cancel. Today’s RPA has active contingency removals. That means the buyer must actively sign off on each particular contingency. The contingency removal date can come and go, and without the buyer’s active release, the contract is still alive with that contingency just hanging out there.
Several decades ago, the California RPA had passive removal for all contingencies. That meant if the buyer hadn’t removed a particular contingency by the contract date, it was deemed automatically accepted. This created irate buyers when negligent agents weren’t on top of the contract’s timeframes. The buyers had issues with the house’s physical condition, but oops, their agent wasn’t time-compliant and the buyers just passively approved the physical inspection. The RPA was changed to require active removal. (Buyers of bank-owned foreclosures should note that banks still use the passive form of removal when selling their foreclosure inventory.)
Today’s RPA has a paragraph in it called “Notice to buyer or seller to perform.” It’s called NBP for buyers. After the NBP is delivered, the buyer usually has two days to release the contingency, or the contract may be canceled by the seller.
A notice to perform is not adversarial. It is politely keeping everyone on schedule. Agents often give an NBP to the buyers when significant contingency release periods are upcoming. This keeps the transaction moving and reveals any significant objections the buyers may have.
Ask your agent to give your buyers an NBP right now. Any delay keeps your house sale in limbo.
Marsha Gray, DRE #012102130, NMLS#1982164, has been a real estate broker in Santa Barbara for more than 20 years. She works at Allyn & Associates, real estate services and lending. To read more Q&A articles, visit MarshaGraySBhomes.com. She will research and answer all questions submitted. Contact Marsha at (805) 252-7093 or email@example.com.