Understanding Contingencies in California Real Estate
In California real estate, contingencies are conditions in a purchase agreement that must be met for the transaction to proceed. These contingencies protect both buyers and sellers from unexpected issues and help ensure the deal moves forward smoothly. The most common contingencies are related to the physical condition of the property, the appraisal, and loan approval. Let’s take a closer look at these key contingencies and their role in real estate transactions.
1. Physical Contingency (Inspection Contingency)
The physical contingency allows the buyer to inspect the property for major issues, such as structural damage, plumbing, electrical problems, or pest infestations. If significant problems are found, the buyer can negotiate repairs, ask for a price reduction, or cancel the deal. This contingency is crucial in California, where properties can face unique challenges like termite damage or foundation issues.
2. Appraisal Contingency
The appraisal contingency ensures that the property appraises for at least the agreed-upon sale price. If the appraisal comes in lower than expected, the buyer can renegotiate the price, pay the difference, or walk away from the deal without penalty. This is particularly important in California’s competitive market, where home prices can fluctuate. However, in highly competitive situations, some buyers may waive this contingency to make their offer more attractive.
3. Loan Contingency
The loan contingency ensures that the buyer can secure financing for the purchase. If the buyer is unable to get approved for a mortgage, they can back out of the deal without losing their deposit. In today’s market, many buyers may waive this contingency to stand out in a crowded field, but doing so carries the risk of being committed to the purchase without financing approval.
4. Additional Contingencies
Other contingencies may be added depending on the situation, such as a title contingency (to ensure there are no legal issues with the property’s title) or a home sale contingency (for buyers who need to sell their current home before buying a new one).
Contingencies in a Competitive Market
In California’s fast-paced real estate market, it’s not uncommon for buyers to waive or shorten the appraisal and loan contingencies to make their offers more attractive. This can help the offer stand out, but it also increases the buyer’s risk. Without these protections, buyers may be locked into the deal even if the property appraises for less than expected or they are unable to secure financing.
Why Working with a Professional Matters
Given the complexities of contingencies and the competitive nature of the market, working with a real estate professional can make a significant difference. A Starker West advisor, for example, can help you navigate the process, understand the implications of waiving or shortening contingencies, and ensure that your interests are fully protected. Whether you are a buyer or seller, having a knowledgeable professional by your side can help you make informed decisions and avoid unnecessary risks in a competitive market.
Seth Watje & Adam Cairo Principals at Starker West Inc – an independent, full-service commercial real estate brokerage firm that specializes in representation of clients in the acquisition and disposition of multifamily assets throughout San Diego County. For more information contact at Watje@starkerwest.com/ Cairo@starkerwest.com , 619-358-3748/619-300-0173 or on the web at WWW.STARKERWEST.COM
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