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Doug Reynolds' Blog

By Doug Reynolds | Agent in Sacramento, CA

Real Estate Definition: The "Contingency Period"

This information pertains to the state of California and mostly Sacramento area real estate. The contingency period or inspection period is designed to serve three major purposes for the buyer. One is to inspect the property, "Inspection Contingency."  Two is to get the buyers loan approved and ready, "Loan Contingency."  And third is to have the home appraised, "Appraisal Contingency." 

The standard California Purchase Contract has a default period of 17 days for these contingency periods. As with anything in real estate, everything is negotiable. So even the time period for the contingencies is negotiable. Most bank owned properties reduce the contingency period to only 10 days.  They want to know fast if the sale is going to happen or not. Once an offer is accepted and you have a binding contract the days begin ticking the following day.

"Inspection Contingency" - this is used for the buyer to conduct whatever inspections they want on the property.  Most buyers have a general home inspection preformed.  From there, an issue with a particular part of the home might come up in the report.  Additionally, a buyer might have a pest/termite report done, a roof inspection, maybe have a plumber or an electrician come out to check specific issues.  Once the inspections are finished a buyer has to decide to either say they are happy with the home and remove their inspection contingency, negotiate with the seller to have certain items repaired (request for repairs) or back out of the sale for a particular issue that came up in the inspection.  Once the buyer removes their inspection contingency they can no longer site a problem with the house as a valid reason to back out of the sale and may be putting their initial deposit at risk.

"Loan Contingency" - a buyer typically only has a "pre-approval" when they are shopping for a house.  Once they are in contract to buy a property their loan officer begins gathering additional documentation.  Sometimes (but not often if the loan officer did a good job of pre approving the buyer up front) the buyer will have to back out of the sale due to an issue with not being able to obtain the financing needed to purchase the home.  Same thing as above, once the loan contingency is waived/removed, the buyer cannot use not being able to get financing as a safe way out of the contract.

"Appraisal Contingency" - during this time, the buyers lender will have an appraisal done on the property as one of the requirements for getting the loan.  The property must appraise at the purchase price amount or more for the lender to give the loan.  If it comes in low the buyer and seller need to re-negotiate or cancel the contract.

Those are the three major contingencies a buyer needs to focus on once they get into escrow on a property.

clear skies,

_ doug reynolds

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