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As a home buyer in California, you are protected by the standard Residential Purchase Agreement. Contained in the standard contract are at least four contingencies of purchase that allow you as the Buyer the right to cancel the purchase contract if certain conditions are not met.
Contingencies are essentially a safety net to allow you time to investigate the home and ensure it meets with your approval, but these contingencies are effective for a limited time only! They are usually only in effect for the first 10 to 17 days after acceptance of your offer, depending on the time period you negotiate in the contract.
The standard contingencies include:
1. Physical Inspection
You are entitled to perform any non-intrusive Physical Inspection on the property as necessary in order to satisfy yourself as to the condition of the property and the land.
These inspections are all performed at your cost, and may include, but are not limited to: Basic Home Inspection, Structural, Geological, Radon, Lead-Based Paint, Mold.
2. Loan Contingency
If you do not receive formal loan approval from your lender within the contingency period, you have the option of canceling the contract. For example, this may occur if your credit score drops suddenly if you forget to pay your bills on time or if you increase your debt significantly by making a large purchase.
3. Appraisal Contingency
Your lender will send out an appraiser to review the condition of property, to measure the living space and to compare against recent sales of similar properties in the area. Typically lenders will only lend you 80% to 90% of the appraised value of the home, leaving you to cover any shortfall between the appraised value and your offer price.
4. Sale Contingency
If you need to sell your current home prior to completing the pruchase of your new home, you can make your purchase offer contingent on the successful sale of your current home. This protects you by preventing you from owning two homes simultaneously, but this contingency is not favored by sellers and it may prevent your offer from being accepted. An alternative solution is to take out a home equity line of credit to enable you to make a non-contingent offer on your new home.
Seller Disclosures
In addition, the Seller must disclose all known facts about the property, including any water damage, soil problems, roof problems, foundation problems, neighborhood noise and so on.
More information on Seller Disclosures here
Cancelling the Contract
If, for any reason, you are not satisfied with the condition of the property or any information that you have learned about the property, or if the property does not appraise at your offer price, of if you do not receive loan approval, you can cancel the contract.
Provided that you cancel the contract in writing before the expiration of the contingency period, your deposit is protected and once the Seller has agreed to cancel escrow you should receive a full refund (the escrow company may charge a small administration fee for the work they performed).
NOTE: If you decide to cancel the contract after you have removed your contingencies in writing, you will forfeit your deposit, up to a maximum of 3% of the purchase price.
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