The housing market is soft. Hard times for some can mean opportunity time for others. Could now be a good time to step into the housing market and pick up a bargain?

Generally, it is a better time to be a buyer than a seller, but this is not so in every market. In San Francisco, for example, there are still more buyers than sellers for prime upper-end properties. You’re not likely to pick up a bargain there.

Many more markets are suffering from too much inventory and too few buyers. These markets would seem to offer the best opportunities. However, this is not necessarily so. Even though the price you pay is relatively low, it could take some time before the value of your investment increases.
(more̷

Do you leave your car running all night for the morning drive to work? Then why leave your water heater running while you sleep?

Be consoled that outside of North America, tank type water heaters are seen as dinosaurs. Although only accounting for 1% of total water heater units sold in the U.S. in 2000, the tankless revolution is in progress.

Tankless instantaneous on demand water heaters save money and are more energy efficient than tank type water heaters. Tankless water heaters guarantee endless hot water and are becoming very popular in the replacement of the old tank type water heaters. You can also rest assured that Fidelity National Home Warranty does not have the $500 limit that some home warranty companies have on tankless water heaters.  New units are averaging in the $1,700 range, so that means your client would have to fork out $1,200 or more just to get their unit replaced if their policy was with one of those companies. To learn more about tankless water heaters, I’ve found that GE has one of the most informative websites to explain how they work.  Click here to check it out.

MARK YOUR CALENDARS FOR THESE COMMUNITY EVENTS

2008 CALENDAR OF EVENTS

June - August

• June 7 Tot Treasure Hunt
• June 14 Fishing Derby
• June 20 Movie in the Park - Willy Wonka and the Chocolate Factory
• July 4 Star Spangled Spectacular
• July 18 Movie in the Park - Over the Hedge
• August 8 Great Rancho Campout
• August 15 Movie in the Park - Water Horse: Legend of the Deep
• (more̷

Copyright© 2008, CALIFORNIA ASSOCIATION OF REALTORS® (C.A.R.) Permission is granted to C.A.R. members

Under contract law, a contingency provides a party to the contract the ability to condition performance on the occurrence or non-occurrence of another event.  For example, a buyer may condition performance under the real estate purchase contract on the outcome of the buyer’s inspection.  If the buyer is dissatisfied with the results of the inspection, then the buyer may cancel the contract without being held in breach of contract.  Another common example:  the buyer under a real estate purchase contract may condition performance on obtaining a specific loan (e.g., not to exceed 7.5% fixed rate and not to exceed 1 point).  After making a good faith effort to obtain such a loan, if the buyer is not approved for such a loan, then the buyer may cancel the agreement without being held in breach of contract.  A buyer of vacant land may want a contingency on city approval of building plans.

The are other types of contingencies.  One party may have a contingency that the contract be approved by an attorney or another third party.  With short sales, the contract is most likely contingent on lender approval.  Some sellers want to have a contingency of entering escrow on a replacement home before they are bound to perform on the sale of their existing home. 

This legal article focuses on some common contingencies arising in real estate sales transactions, in particular in C.A.R. Form RPA-CA (residential purchase contract), and the method for removing contingencies under the C.A.R. purchase contracts. 

I.  COMMON CONTINGENCIES IN RESIDENTIAL SALES TRANSACTIONS

Q 1.  Is there an inspection contingency in the C.A.R. residential purchase contract, the RPA-CA?

A Yes.  The buyer’s inspection contingency can be found in Paragraph 7A(i)(b) and arises from the contract language: “subject to Buyer’s investigations rights” and also the explicit language in Paragraph 9A, “Buyer’s acceptance of the condition of, and any other matter affecting the Property is a contingency of this Agreement….”  Paragraph 14B indicates by when the buyer must remove the inspection contingency (among others).  The default time is 17 days but may be contractually changed.

Q 2.  Can a buyer waive the inspection contingency?

A Yes.  There is no California law that prohibits the buyer from waiving the right to inspect the property.  However, sellers should be aware that whether the buyer inspects the property or not, the seller is still legally obligated to disclose all known material defects to the property.  (Lingsch v. Savage, 213 Cal.App.2d 729 (1963).)

Furthermore, for residential one-to-four properties, both listing and selling agents still have a duty to conduct a diligent visual inspection (Easton v. Strassburger, 152 Cal. App. 3d 90 (1984); Cal. Civ. Code § 2079).  See also the C.A.R. legal article, Real Estate Licensee’s Duty to Inspect Residential Property, found on http://qa.car.org.

Q 3.  Is there a loan contingency in the C.A.R. residential purchase contract, the RPA-CA?

A Yes. The loan contingency can be found in Paragraph 2 Section I.  There is a loan contingency unless Paragraph 2K or 2L is checked. There are two option boxes.  The default loan contingency period of time is 17 calendar days; the first box permits another number of days and the second box leaves the loan contingency in effect until the loan is funded.

It is recommended that buyer’s agents assist the buyer in completing Paragraph 2, Finance Terms, in the RPA-CA.  Even though, the buyer may not know what type of loan the buyer will be obtaining, it is important to insert a maximum interest rate and maximum points that the buyer would be willing to pay to obtain a loan.  If this paragraph is left blank, then the buyer has a obligation under the contract to accept any loan whatsoever or risk being considered as not acting in good faith under the contract.

Q 4.  What is the appraisal contingency in the RPA-CA?

A In Paragraph 2J of the RPA-CA, the contract default provides an appraisal contingency.  If the box is checked, there is no appraisal contingency.  This contingency differs from a loan contingency since it is quite possible for a lender to be willing to provide a loan even though the property does not appraise at the sales price.  For example, this might occur if the buyer is providing a substantial down payment and the loan amount is less than the appraised value.  Nevertheless, this contingency means the buyer need not proceed with the transaction, if the buyer will be paying more than the property appraises.  This contingency permits the buyer either to cancel or to renegotiate the sales price to reflect the appraised value of the property.

Q 5.  What other contingencies can be found in the C.A.R. residential purchase contract, the RPA-CA?

A The RPA-CA also contains other contingencies, contingency on sale of buyer’s property (Paragraph 13B and Form COP Paragraph A), approval of condominium/planned development disclosures (Paragraph 6B “Buyer’s approval of CI Disclosures is a contingency of this Agreement….”), tenant-occupied property agreement (Paragraph 3C(iii)), inspection reports (e.g., pest control, septic tank, wells) and disclosures (Paragraphs 4, 5, and 9A), insurability of the buyer and the property (Paragraph 9A(iv)), preliminary title report approval (Paragraph 12A), review of the sex offender database (Paragraph 9A(iii)), among others.

Q 6.  Are there any non-optional contingencies?

A Yes.  For residential properties built before 1978, federal law does require that the buyer be given a lead hazard information pamphlet, that the seller disclose the presence of any known lead-based paint and provide a statement signed by the buyer that the buyer has read the warning statement, has received the pamphlet, and has a 10-day opportunity to inspect before becoming obligated under the contract.  The buyer’s right to conduct a lead hazard inspection is a contingency of the contract required by federal law unless the buyer has had the opportunity to do so prior to execution of the purchase contract.

Furthermore in a residential one-to-four sales transaction, unless exempt, the seller must give the buyer the TDS and give the buyer the right to cancel within 3 days (or 5 days if the TDS was mailed to the buyer).  If the seller doesn’t give the buyer the TDS when obligated to do so, a California court has held that the buyer does not have to go through with the sales transaction. (Realmuto v. Gagnard, 110 Cal. App. 4th 193 (2003).)

Q 7.  Can a seller insist that the buyer have no contingencies?

A Yes, but only if the transaction is handled properly!  In a residential sales transaction, the law requires that the seller provide the buyer with certain disclosure documents.  See Question 6 for non-optional contingencies. 

However, the seller can avoid giving the buyer any disclosure contingencies by providing all the necessary disclosures prior to the buyer submitting the offer to purchase.  In addition, the seller would need to give the buyer the right to conduct a lead hazard inspection (for residential property built before 19 before binding the buyer to the purchase contract.

Q 8.  How is the contingency on lender approval handled for short sales?

A If a sales transaction will be contingent on lender approval, either the buyer can attach C.A.R. Form SSA (Short Sale Addendum) to the offer or the seller can counter the offer with the SSA.  The SSA which is used as an addendum to the RPA-CA (or other forms) indicates in Paragraph A that the contract is contingent on lender approval.

If the seller doesn’t receive written consent from all the lenders by the specified date, then either party may cancel the contract.

II. CONTINGENCY REMOVAL

Q 9.  How is a contingency removed?

A Under the requirements of the RPA-CA in Paragraph 14B(3), the buyer must remove all contingencies in writing using C.A.R. Form CR.  This form provides check boxes in Paragraph A1 giving the buyer the option of removing only particular contingencies.  Instead of using Paragraph A1, the buyer may check Paragraph A2 giving the buyer the opportunity to remove all contingencies except for the ones indicated by checking another box or boxes.  The third option is for the buyer to check the box for Paragraph A3 whereby the buyer removes all the contingencies in the contract without any exceptions.

If the seller is given a contingency on the purchase of replacement property (C.A.R. Form COP Paragraph B is checked), the seller must remove this contingency in writing according to Paragraph B2.  The seller may also use C.A.R. Form CR.  However, the seller would check one of the boxes under Paragraph B.  There is also a box for the seller to remove any other contingency which the seller may have under the contract.

Q 10.  Must a buyer remove a contingency regarding a disclosure that the buyer has not yet received from the seller?

A Even if the contingency period has passed, under the RPA-CA Paragraph 14B(3), the buyer is not legally obligated to remove those contingencies related to “(i) government-mandated inspections/reports required as a condition of closing; or (ii) Common Interest Disclosures” until 5 days after receiving those disclosures.  The buyer has the latter of the 17 days (if this default time is used) or 5 days after the seller gives the buyer the above-mentioned disclosures.

For example, if the contingency period ends on Wednesday, April 16th but the seller gave the buyer the common interest disclosures (HOA documents) on Tuesday, April 15th, then the buyer has 5 days from the 15th, until Sunday, the 20th at 11:59PM (under the RPA-CA contract “days” means calendar days), to remove this contingency without being in breach of contract.

On the other hand, if the contingency period ends on Wednesday, April 16th but the seller gave the buyer the common interest disclosures on Tuesday, April 9th, the buyer still has until April 16th to remove this contingency–not just 5 days but the full contingency period.

Q 11.  Do the additional 5 days discussed in Question 10 apply to the preliminary title report contingency?

A No.  If the buyer has not received the preliminary title report by the end of the contingency period, the buyer does not have an additional 5 days from receipt in order to remove this contingency since this is not a government-mandated inspection/report.  The buyer has the option of cancelling the contract or proceeding without it.  However,  the buyer may have legal remedies should the preliminary title report contain information having a negative impact on the buyer’s desired use of the property.

In Field v. Century 21 Klowden-Forness Realty, 63 Cal. App. 4th 18 (1998), the buyer successfully sued the dual agent for breach of fiduciary duty.  One mistake, among others, made by the agent was not making sure that the buyer received the preliminary title report prior to close of escrow.

Q 12.  What happens when the buyer doesn’t remove a contingency in writing at the end of the contingency period?

A Under the RPA-CA Paragraph 14C(2), the contingency continues.  In other words, the contingency remains as a contingency until it is removed or escrow closes.  Thus, for example, if the loan contingency is not removed by the buyer, it gives the buyer the opportunity to cancel the contract at any time during the escrow (assuming the buyer is acting in good faith in trying to obtain a loan) if the buyer cannot obtain the specified loan and the buyer is not in breach of contract.

Q 13.  What can a seller do if at the end of the contingency period, the buyer doesn’t remove the contingency in writing?

A Under the RPA-CA Paragraph 14C(4), the seller has the right to give to the buyer a notice to perform (C.A.R. Form NBP) which gives the buyer an additional 24 hours (the default period of time) to remove the contingency in writing.  If the buyer doesn’t remove the contingency, then the seller may cancel the contract in writing and not be in breach of contract.

Q 14.  Can the seller give a buyer the notice to perform (C.A.R. Form NBP) mentioned in Question 13 before the end of the contingency period?

A Yes.  The seller can give the buyer the NBP as long as two days before the end of the contingency period but not more than that.  However, giving the NBP earlier does not shorten the contingency period.

For example, let’s say the buyer has until Wednesday, April 16th to remove the contingency in writing.  Then the seller gives the buyer the NBP on Monday, April 14th which states that the buyer has 24 hours to remove the contingency.  The buyer still has until Wednesday, April 16th 11:59PM to deliver the C.A.R. Form CR to the listing agent or seller.

Suppose, in the same example above, the seller gave the buyer the NBP giving the buyer 24 hours notice on Wednesday, April 16th at 3PM.  Now the buyer has until Thursday, April 17th 3PM to remove the contingency in writing (by delivering the CR to the listing agent or seller).

Q 15.  If the buyer doesn’t remove the inspection contingency at the end of the contingency period, does this give the buyer the right to continue conducting inspections of the property?

A No.  Under the RPA-CA Paragraph 14B(1), the buyer has 17 days (the default period of time) after acceptance to “complete all Buyer Investigations….”  Although a seller may choose to give the buyer additional time to perform the buyer’s inspection, the seller is not contractually obligated to give the buyer more time.  However, the seller is obligated to give the buyer the NBP which simply gives the buyer 24 hours (the default period of time) to remove the inspection contingency not 24 hours more to inspect the property.

Q 16.  Is closing escrow a contingency of the RPA-CA purchase contract?

A No.  The closing of escrow is considered a covenant or condition under the contract to which both parties are bound.  If the seller delays the close of escrow (e.g., if the seller doesn’t execute the grant deed), then the seller is in breach of the contract.

If the buyer delays the close of escrow (e.g., if the buyer doesn’t deposit the balance of the monies or if the buyer doesn’t sign the loan documents), then the buyer is in breach of the contract.

What should a buyer or seller do if the other party doesn’t close escrow?  Either party can use C.A.R. Form DCE (Demand to Close Escrow).  In Paragraph 1 the seller is the one demanding that the buyer close escrow and in Paragraph 2 the buyer is one demanding that the seller close escrow.  After giving the DCE and the other party still refuses to close escrow, then it would be advisable to consult with an attorney to discuss all the possible remedies including suing for specific performance.

For additional information about contracts and remedies, see the C.A.R. legal article, Contract Law and Real Estate Transactions, found on http://qa.car.org.

Q 17.  What is meant by “active removal” or “passive removal” of a contingency?

A The term “active removal” used when talking about a contingency means that a party must do something to remove a contingency.  Typically this means removing the contingency in writing.  For “passive removal” of a contingency, the party need do nothing.  The contingency is automatically removed with the passage of time. 

The RPA-CA as well as all the other C.A.R. purchase contracts require active removal of the buyer’s contingencies.

Q 18.  What happens if a buyer removes all the contingencies and then discovers a material defect in the property prior to the close of escrow and wants to cancel?

A The answer to that question depends on many different factors.  One, if the seller was aware of the defect but didn’t disclose it to the buyer, the buyer may be able to cancel without breaching the contract.  Two, if the defect is visually obvious to the buyer but the buyer didn’t notice it other than during the walk-through, then the buyer may be held in breach of contract if the buyer cancels.  There is no clear cut answer to this question because it depends on the specific facts of each situation.

Q 19.  Where can REALTORS® obtain additional legal information?

A For additional information about contracts and remedies, see the C.A.R. legal article, Contract Law and Real Estate Transactions, found on http://qa.car.org.

This legal article is just one of the many legal publications and services offered by C.A.R. to its members. For a complete listing of C.A.R.’s legal products and services, please visit C.A.R. Online at www.car.org.

Readers who require specific advice should consult an attorney. C.A.R. members requiring legal assistance may contact C.A.R.’s Member Legal Hotline at 213.739.8282, Monday through Friday, 9:00 A.M. to 6:00 P.M. C.A.R. members who are broker-owners, office managers, or Designated REALTORS® may contact the Member Legal Hotline at 213.739.8350 to receive expedited service. Members may also fax or e-mail inquiries to the Member Legal Hotline at 213.480.7724 or legal_hotline@car.org.  Written correspondence should be addressed to:

California Association of REALTORS®
Member Legal Services
525 South Virgil Avenue
Los Angeles, California 90020

Margo Murray - Real Estate Broker
Part Owner of Regency Real Estate Brokers
(One of the largest Real Estate Offices in South Orange County)
Certified Residential Specialist (CRS) - Top 1% Nationwide
Serving South Orange County since 1988 by helping families selling and buying real estate.

By striving for excellence, we achieve success. We strive to offer a level of extraordinary service to each of our clients, to do things the right way. Margo’s business plan is for the long term…not the quick deal. We have never needed any single transaction enough to compromise our integrity and we never will.

We have been very fortunate for the tremendous loyalty and support of our current and past clients—both with their repeat business and with referrals. Margo’s desire for excellence has become her greatest strength and that is why clients trust us and refer us their friends and family.

To be successful in this business:

One must be competitive in nature, have marketing expertise, staying power, creativity and a great deal of experience and knowledge of the market.

One must also have the ability to adapt to new and exciting technologies.

One must be a people person with a passion for the business.

One must have a team in order to provide extraordinary service.

One must be willing to earn a client’s business by hard work and going the extra mile.

After many years of residential sales, I can honestly say that I enjoy the real estate business as much as I did as a “rookie” back in 1988. It gives me great pleasure to find the right house for an enthusiastic buyer, or to help sell a home for a client. Whether you are buying, or selling, we offer to you the best. The best in personal service and attention, an trough our marketing an edge in the marketplace, solid advice with a vision to the long term, and a professional approach that does not stop at closing.

With 20 years of experience Margo has won many awards, but the plagues and certificates have never mattered to her - what matters are satisfied clients. Since 70% of her business comes from past and referred clients Margo and her team spend the majority of their time serving clients, rather than looking for new clients.

It would be my pleasure to earn your trust and your business!
I look forward to working with you! Please contact me at:
(949) 858-1770 - Cell: (949) 306-8520 - margo@margomurray.com