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Home Buying Contingency Removal Under CA Purchase Contract
Contingency Removal Dates are in the Purchase Contract
If anything, this Sacramento REALTOR is a stickler for adhering to the terms of the California Residential Purchase Agreement between her sellers and another agent’s buyers. Yeah, yeah, I hear from other transaction coordinators around town that many listing agents never ever ask for a contingency release, and they just blow it off, like some buyer’s agents will also blow off adhering to the buyer’s duties under the terms of the purchase contract — oh, those pesky legal documents — but that doesn’t make it right much less legal.
A listing agent has a fiduciary relationship according to California Civil Code and the California Bureau of Real Estate. The Agency Disclosure describes a listing agent’s fiduciary as “a fiduciary duty of utmost care, integrity, honesty and loyalty when dealing with the seller.” It goes on to say the agent must show diligent exercise of reasonable skill and care, and the same fiduciary pertains to buyer’s agent and even dual agents to their respective parties, if you can believe that.
Yet, who gives a crap about this, you might ask? That’s a reasonable question that should have a reasonable answer, but I don’t have one. I know I care deeply about my fiduciary.
When I represent a seller who enters into a residential purchase agreement with the buyer to sell a home, I remind the buyer’s agent when the contract contingencies are to be released. We remind the buyer’s agent when we enter into the contract, and again, a day prior to the contingency removal. I can’t count the numbers of times we have asked for a contingency release and been ignored. Oh, just don’t worry about it, seems to be the prevailing attitude from some buyer’s agents.
Someday those agents will be a listing agent. Someday these same agents might discover the unfortunate experience of standing in front of a judge, head hung, to answer: Did you show utmost care, integrity, honesty and loyalty? It’s not a place I have ever been nor a place I ever want to visit. But fear of reprisal is not my reason for following the terms of the purchase contact.
It is my fiduciary duty as a listing agent to request a home buying contingency removal for the sellers. If the buyers need more time, then buyers should consider submitting an Extension of Time Addendum for the sellers to entertain. If you were to read paragraph 14-B-3 of the RPA, it states: By the end of the time specified in 14-b-1, which is the number of days available to a buyer to complete all investigations,?”Buyer shall deliver to Seller a removal of the applicable contingency.” It goes on to state that if the buyer refuses, the seller can ultimately issue a Notice to Perform and then cancel the contract.
It’s nothing personal when I ask for a contingency removal under the terms of the purchase contract. I am just doing my job and asking that the buyer’s agent do the same thing. If the sellers elect to cancel the transaction due to non-response, hand over the deposit to the buyer and send the buyer on his merry little way, that’s up to the sellers. In situations in which buyers fail to perform, I do have to give the sellers that option. It’s my fiduciary duty.
A Solution for Home Buyers Facing a Contingency Release Deadline
A Sacramento real estate agent who represents sellers is generally vigilant about following the terms of the purchase contract and asking buyers for a contingency release upon the specified dates. Unless otherwise altered, buyers typically agree to release inspection contingencies, loan and appraisal contingencies by the 17th day. The listing agent is sometimes viewed as an ogre or a downright meanie if her seller asks the buyer to perform in accordance with the contract.
It’s not unusual after a request for contingency release for this listing agent to receive from the buyer’s agent a tirade of blistering words, mish-mashed together in a denunciatory nature, sounding as though the buyer’s agent is angry but lacks an ability to grasp the right words to get the point across. Sort of reminds me of Daffy Duck sputtering you’re despicable. The buyer’s agent generally ends the diatribe with the supposed justification of: I’m just protecting my buyer.
One can’t help but wonder that if an agent is protecting the buyer, why is the agent advising the buyer to breach the contract?
As a standard of practice and care for my clients, we send buyer’s agents an email notice as a courtesy the day before a contingency release is coming up. We ask politely to send us the CR form and remind the agent that a contingency needs to be released. In some cases, you’d think we asked them to strip naked and dance in the streets. Shield the eyes. Some agents have never heard of the contingency release. Some prefer to explode over it. Fortunately, most buyer’s agents respond in an appropriate manner. But some don’t.
If we don’t receive a contingency release, though, the next step is to ask our sellers if they want to issue a Notice to the Buyer to Perform. This gives the buyers 2 days to produce the document or the seller may have the right to cancel the transaction. Will the seller cancel if the buyer doesn’t perform? Some sellers will cancel the purchase contract faster than you can say sore losers shouldn’t talk to the press after losing at Belmont Stakes — especially if the sellers have backup buyers willing to pay more.
The biggest issue is generally not the inspection contingency that generates the reluctance, it’s releasing the loan contingency. Not to mention, there’s a whole ‘nother discussion as to whether a Small Claims Court judge would even award an earnest money deposit to a seller, but buyers and their agents don’t know that. The simple solution is if a buyer needs more time — due to the way loans are scrutinized with all the delays going on in today’s market — then the buyer, through her buyer’s agent, can ask to extend the contingency through an Extension of Time addendum.
It’s not the listing agent’s job, however, to tell the buyer’s agent what to do or how to protect the agent’s buyer. An Extension of Time (ETA), if agreed to by all parties, can extend a particular contingency period in the purchase contract. Stay in contract. Don’t breach it, don’t let it expire, stay in contract.
Selling a Home and Buying at the Same Time in Sacramento
I stopped by yesterday to visit with a nice couple who are thinking about selling and buying at the same time. They want to sell their pool home in Citrus Heights and buy another home. Their challenge is similar to other sellers in Sacramento. Because it’s a seller market, undoubtedly their home will immediately sell. The problem is buying a new home. There are more home buyers in Sacramento than homes for sale right now. So while you can easily sell, it might be a bit of struggle to buy. For some, selling a home and buying at the same time isn’t gonna happen.
To give you an example, just 5 short years ago, we had more than 10,000 homes for sale in the entire county of Sacramento. Today, we have fewer than 1,800 homes for sale. The numbers work out to about an 82% percent drop in inventory. That’s an astounding number. Not only that, but with interest rates below 4%, buying a home means a buyer will most likely pay less than it would cost to rent a home. Since investors can now receive positive cash flow, those guys have thrown their hats in the ring, too, and it’s like a war zone out there.
I tell you this, if you’re in escrow right now, stay there. Don’t get fancy schmancy ideas about asking a seller to fix a leaky sink or think about trying to renegotiate a sales price. If you’re lucky enough to have a home to buy, count your lucky stars. Kiss the ground you’re walking on. And thank your Sacramento REALTOR, who probably had something to do with it.
One of my Sacramento home sellers found a home to buy over the weekend. She was in an excellent position because her buyer had removed contingencies. So, it was a contingent offer without much of a contingency. Sometimes, agents get a little testy when we ask for a Contingency Release but it’s extremely important. It means the buyer is committed. We ask for a Contingency Release for every transaction, whether the seller has equity or it is a short sale, it makes no difference. The buyer must release contingencies or the seller just might cancel the buyer.
This seller had no trouble selling a home and buying at the same time. She was able to sell her home in Sacramento and buy another home in the Pocket. Plus, she was up against multiple offers. Her offer won because she was represented by the Elizabeth Weintraub Team. I sold her home, and my team helped her to buy a new home. Was it easy? For her family, it was. But that must be why we make the big bucks.
How a Home Buyer Can Kiss Her Earnest Money Deposit Goodbye
We had a banner day in Sacramento short sales on Monday. While last week was one of those rare oddities in which it seemed that every time I turned around I was stepping into a big ol’ pile of stinky dog poop, this week is definitely back on track. I am back to a relatively smooth running real estate business with little bumps in the road along the way but no major potholes. I received 4 short sale approval letters yesterday and 2 extensions.
One approval was for a pool home in Carmichael. Another was for a Bank of America Cooperative short sale in Sacramento; there was an approval for a short sale in Galt, and an all new approval for a popular Carmichael short sale. I received a much needed short sale extension for a short sale that could not close in Rosemont and another in Sacramento, both of which were caused by excessive (buyer) lender delays.
Receiving short sale approval letters is a good thing. Finding out a buyer is canceling a short sale is not a good thing. It’s doubly NOT a good thing when the buyer cancels after short sale approval. I hate it when that happens. Especially if my sellers have moved out and now have to move back.
As a Sacramento real estate agent, I take precautions on behalf of sellers. It’s my job. For example, I routinely ask the buyer to sign a contingency release by the termination date for contingencies. Many listing agents don’t demand a contingency release from buyers because they don’t want to rock the boat or they don’t think of it. What a contingency release does, providing all of the contingencies are released, is put the buyer’s earnest money deposit at risk. It basically says if the buyer later elects to cancel, the earnest money deposit belongs to the seller.
Of course, if the buyer wants to contest the release, the money is not automatically released. Escrow requires mutual consent. In that case, the seller can take the buyer to small claims court and fight for the deposit there. Either way, once contingencies are released, the seller is generally entitled to the earnest money deposit.
Now, a $1,000 deposit makes a very small dent in the expenses a seller might incur when a buyer selectively cancels. If I was a seller who had to go to small claims court to demand a deposit that I believed to be rightfully mine, I might also ask for other damages that either meet the limit for liquidated damages in the purchase contract (3% of the purchase price) or small claims court monetary limits. The California small claims court dollar-limit maximum was raised this year to $10,000.
Guess I’ll polish the back of my high heels and trudge on stepping over dog poop. I’ve got another short sale in Lincoln to sell for a second time.
