Winning Bidding Wars with Non-Contingent Offers

Non-Contingent Offers

In this market, many buyers find themselves in bidding wars with other potential buyers. In order to sweeten offers, in the multiple-offer situations, many buyers are waiving all or most of the contingencies set forth in the standard C.A.R. Residential Purchase Agreement (RPA). While this practice is perfectly legal, there are a number of potential concerns to be aware of.

Non-Contingent Offers

In this market, many buyers find themselves in bidding wars with other potential buyers. In order to sweeten offers, in the multiple-offer situations, many buyers are waiving all or most of the contingencies set forth in the standard C.A.R. Residential Purchase Agreement (RPA). While this practice is perfectly legal, there are a number of potential concerns to be aware of.

What is a Contingency?

Simply defined, a contingency is a condition precedent to a buyer’s duty to fully perform.  Assuming the buyer acts in good faith, a buyer will have the time allotted in the RPA (generally 17 days) to either satisfy and remove the contingency or cancel the Contract.  (It should be noted that the RPA provides that the time to resolve those contingencies could be extended if the seller does not demand their removal by providing a Notice to Buyer to  Perform)  Simply stated, the buyer does not default, and contingencies remain to protect the deposit.

Why are Contingencies important?

Generally, the buyer will deposit a certain amount to assure performance (usually up to 3% of the purchase price) and agrees that if they fail to perform and default the seller gets to keep the deposit as “Liquidated Damages.” If the contingencies are removed, or are waived in the first place, the seller is entitled to the deposit under most circumstances where the buyer cannot close on time.

It should also be noted that for every rule there are exceptions. DO NOT practice law by giving your opinions as to the seller’s rights to the deposit. There are too many legal issues. Let the lawyers interpret!

Types of Contingencies

While the RPA provides for as many as nine (9) preparation contingencies, there are three (3) that may be critical: The Loan Contingency, The Appraisal Contingency, and The Inspection Contingency.  Each contingency deserves its own Courtside Real Estate newsletter.  However, by waiving these contingencies, the buyers could lose their deposit if the Liquidated Damages clause is part of the RPA and they cannot perform.

Risk Management Tips

1. waiving the appraisal contingency in the fluctuating market, they may still cancel but will most likely lose their deposit.
2. Get as much done as you can before the term period for cancelling provided by a Transfer Disclosure Statement expires.  That “Right of Recission” is statutory and cannot be waived.
3. Make sure you carefully document your files and, whenever possible, get the buyers acknowledgement.  Write professionally.
4. If you are the listing agent, do not guaranty the seller’s right to the deposit.  Things can always go wrong.

Next Month: An analysis of new and revised C.A.R. forms due in June.