Generally, how many days does the notice to buyer to perform give the buyer to remove a contingency?

A contingency is a condition of a real estate contract that determines when and under what type of circumstances a buyer may cancel the contract. A contingency also regulates what happens to the buyer’s earnest money or any deposits in the event they cancel the contract. Once both parties (buyer and seller) come to an agreement, and there are no further changes to the contract, it will be ratified. All contingency deadlines start on the day of ratification.

Common Contingencies 

There are several different types of contingencies. For this article’s purpose, we will focus on the most common contingencies. 

Home Inspection Contingency

Also referred to as a Due Diligence Contingency, a Home Inspection Contingency allows the buyer an opportunity to have a home inspected within a certain time frame, generally 7-10 days. This inspection protects the buyer by allowing them to cancel the contract, negotiate any repairs needed, or negotiate a credit. If no agreement can be reached, the buyer has the option to void the contract within the Home Inspection Contingency period. 

Appraisal Contingency

An Appraisal Contingency is ordered by the lender to be sure the home appreciates for at least the sale price. Typically, appraisals are completed within 10 days.  If the appraisal comes back lower than the sales price, the contingency allows the buyer to request a lower purchase price. If the seller declines to lower the price, the buyer has the option of canceling the contract. 

Finance Contingency

A Finance Contingency, also known as a Mortgage Contingency, shields the buyer from losing their earnest money or any deposits if they are unable to secure a loan.  Most sellers investigate the buyer’s ability to complete the transaction before agreeing to a finance contingency. Usually, the buyer and seller agree on a time period for the buyer to secure a loan. Typically, a Finance Contingency is anywhere from 21 to 30 days. Because of COVID, some Finance Contingencies may be longer. Each situation is unique. 

Home Sale Contingency

A Home Sale Contingency is frequently included in a real estate contract. Many people are selling their home and searching for a new home simultaneously. However, in most situations, buyers will not be able to purchase the new home until their home sells. With a Home Sale Contingency established, the transaction is completely contingent upon the sale of the buyer’s home. Generally, both parties agree upon a specified date for the buyer’s house to sell allowing the contract to move forward. If the buyer’s home does not sell in the agreed-upon time, the contract can be terminated. 

Contingency Timelines

Anywhere between 10 and 30-day time frames are the general default for contingencies. However, either party can negotiate shorter or longer deadlines. In a competitive market, such as today it is not uncommon for parties to negotiate deadlines that work in both their interests.

If you are a buyer hoping to shorten contingency periods be sure to speak with your lender about the current time frame for loan approval and appraisal. Establish with your home inspector the time it will take to get an inspection report.

Removing Contingencies 

Removing the contingencies happen when everything agreed to comes to fruition. For example, if the seller agrees to everything on the Home Inspection Contingency, then the contingency is removed. On the other hand, if the seller doesn’t, the buyer can continue to proceed with the contract, counter-offer with an amended list, or choose to void the contract with no penalties. 

The party that makes the contingency (almost always the buyer) is the party who is allowed to default on the contract if the contingency is not upheld. Typically, if both parties want the sale to proceed. More than not they are able to come to a compromise. In cases where no agreement can be made, usually, real estate agents are able to negotiate a compromise.

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A mortgage contingency is a clause stating that the sale of a home can only occur once certain conditions are met. Contingencies can vary, but they usually include a deadline or timeframe that defines when the conditions must be met. The typical contingency clause will detail when the buyer needs to get a mortgage by and what happens if the homebuyer cannot meet the terms. This usually means that the contract will be voided.

• What is a Mortgage Contingency?
• How Long Does a Mortgage Contingency Last?
• Should You Waive Your Mortgage Contingency?

What is a Mortgage Contingency?

A mortgage contingency is a clause written into a home sale agreement which can void the sale if certain conditions aren’t met. This clause is usually added to protect both the homebuyer and seller if the buyer is unable to secure mortgage financing. Mortgage contingencies also specify when an official approval for a mortgage needs to be in place. The date varies, but is usually a week before the anticipated closing date.

Homebuyers may receive preapproval for a mortgage when making an offer on a property. However, they cannot be fully approved until the mortgage lender verifies information from the borrower and details about the property. In most cases, buyers sign their home purchase agreement before getting mortgage approval.

If either party backs out of the purchase agreement before the buyer secures a mortgage, then there are no penalties. Thanks to the contingency clause, the buyer would recover the earnest money deposit with no obligation to purchase the home. Earnest money, also known as a good faith deposit, is money that the buyer presents to show that they're serious about purchasing the home. Buyers who back out after securing a home loan will lose their earnest money deposit, which is often held in an escrow account until closing.

Most mortgage contingency clauses also include lending terms, which set a specific dollar amount and the interest rate the buyer needs to get approval for. They should also state any loan closing fees that may be charged. Lending terms protect buyers, allowing them to back out of a sale agreement if they cannot secure a home loan or if interest rates and fees are too high.

How Long Does a Mortgage Contingency Last?

The buyer and seller must agree on the timeframe in which the buyer needs to secure mortgage approval. A contingency period typically lasts anywhere between 30 and 60 days. If the buyer isn’t able to get a mortgage within the agreed time, then the seller can choose to cancel the contract and find another buyer.

This timeframe may be important if you encounter a delay in getting financed. For example, you may be asked to provide additional documents or run into public holidays that stall the approval. Such delays are common, and setting up a longer contingency period may help prevent the seller from backing out of a sales contract. Furthermore, you may find that—even though you got a pre-approval letter—your mortgage application is denied. In this case, you can try to find another lender to grant you a loan before the deadline.

The negotiation of contingency terms depends on a few factors. In a strong buyer’s market, the seller may be more willing to accept a mortgage contingency with a longer timeframe. In a seller’s market, homebuyers may find it difficult to obtain a deadline closer to the typical 60 days. In any case, sellers prefer buyers who can get funding more quickly.

If you're finding it hard to get a mortgage approved before the end of your contingency period, it's possible to request an extension from the seller. Since granting an extension is entirely up to the seller, you may have to offer additional earnest money to show that you're still serious about buying. Depending on the original contract terms, you may also need an attorney to prepare amendments and get both parties to sign them before the deadline.

Should You Waive Your Mortgage Contingency?

Waiving your mortgage contingency means that you agree to forfeit your earnest money deposit if you fall short of the terms in your sales contract. A contingency waiver may make sense if you want your offer to appear more attractive to the seller. This may be a useful tactic in a seller’s market, where a homeowner might receive multiple offers at once.

However, waiving the mortgage contingency clause introduces significant risks to your situation. Once the seller agrees to a contingency-free sale, backing out at any point means forfeiting any earnest money you provide. Depending on the state you're in, a seller may also have grounds to sue you for breach of contract or financial damages incurred from taking their home off the market.

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