April 28, 2021
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.
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.
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.
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!
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.
Next Month: An analysis of new and revised C.A.R. forms due in June.
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