The post I am writing assumes the 3 following facts:
1: you used a standard California Association of Realtors Residential Purchase Agreement (hereafter referred to “RPA”, “contract”, or “offer”)
(If you are not, then you and/or your agent need to go through it line by line to check on the sections regarding appraisal and loan contingencies.)
2: You have access to the RPA, any counter offers, addenda, or amendments that are a part of the operating contract/escrow instructions.
(If you do not have this (or cannot find it) then you need to have your agent email, fax, or hand you a new copy. He needs to do this on demand, not when it is convenient. Obviously if he is out of town, or in the hospital, you can’t force this but if you are willing to go pick it up or do whatever it takes to get it, he needs to reciprocate. Don’t be rude or angry, but be insistent.)
3: Your deposit is held with a licensed escrow firm that uses bilateral instruction.
(If not, then your whole transaction has the security of ebay. It would then be a faith-based transaction.)
Lending/appraisal contingency:
Section 2I of the RPA mentions a loan contingency that remains in effect until 17 days or (if the box is checked) whatever number you fill in.
Section 2J of the RPA itemizes the appraisal contingency as 17 days or (if the box is checked) whatever number is filled in.
While itemized separately, the appraisal contingency is part of the loan contingency. That means prior to expiration of both, you get to cancel, due to lending difficulties, without penalty.
Calculating the date:
The date at which the clock starts ticking is not always clear. Is it the date at which there was verbal acceptance, the date at which written acceptance was received by the offering party, the point at which acceptance was confirmed by the accepting party, when the property was put to “pending” in the MLS, or when money was deposited with escrow? While there are things that mention this in the docs, typically there is not a clear agreement by the agents or parties. This general fuzziness can be to a buyer’s advantage. As a general rule, it is best to treat the latest of these dates as the one you can defend. That way, you can push the contingency removal date as late as the other side will allow based on the beginning of the escrow period. Of course recall that the seller will be calculating it as early as possible.
Removing the contingency:
If you have passed the expiration date (however calulated), relax. Your deposit is still not necessarily in jeopardy. In California, most parties to the transaction treat the contingency removal as active. That means that the contingency is not removed by passing a date on the calendar but by volitional action. Specifically, there needs to be something other than the CAR RPA date on the calendar. There needs to be a form on which you explicitly said that you have removed that contingency. If you read sections 2I and 2J, it actually does not say that these mean the end of the contingency period, but that you agree to remove this contingency after that many days following acceptance.
If the contingency removal is passive (as with certain REO addenda and with virtually all developer contracts), you need to know that ASAP. You need to find out from somebody in an email. If nobody with tell you in an email or fax, then you need to reconsider your relationship with that person. That is true if it is the seller or own agent.
Assuming contingencies are removed:
First, you need to see how serious the seller is about holding that deposit. Escrow will not refund your deposit or hand it to the seller without instructions from both principals that say so. They are barred legally from making decisions based on unilateral instructions that do not agree with the other principal.
At the same time, the seller wants to sell, not to hold a deposit. See if some accommodation can be made.
Now an anecdote:
Three years ago, as an office manager, one of my agents’ listings had an accepted offer of 715k. The appraisal came back at 695k. The buyer was financing 100%. We convinced the seller to pay for a second appraisal that came back at 705K. The principals met in the middle and agreed that 705k was acceptable. That same month, another of my agents (the broker this time) represented a buyer in an escrow. All contingencies were removed at day 18 of escrow. The loan officer called us on day 19 stating the the appraisal had come back as unlendable. It turned out that the pre-fab garage caused the lender to classify the property as a mobile home (which it clearly was not). While there was clearly some fault on our part (the loan officer should not have waited until day 17 to do an appraisal), the other side was also at fault (the seller did not disclose the pre-fab garage). As an accommodation, the seller released one third of the earnest back to the buyer. We credited another third out of a subsequent escrow. We never used that loan officer again.
