A contingency is something that a buyer holds as a way to get out of the contract. The most common are inspection, financing and appraisal contingencies. The “standard” method of how contingencies are officially removed has changed quite a bit over the years. There are two main ways – passive and active.
Passive contingency removal means that when the deadline passes and the party in question has not cancelled the agreement, by default they have removed their contingency. That is why it is called “passive.” If you do nothing, you are deemed to have removed your contingency.
Active contingency removal means that when the deadline passes, if the party in question has not removed their contingency, they still retain it. For example, if the contract gives the Buyer 17 days to remove their inspection contingency, and on the 18th day the Buyer has not removed their contingency, they still have that contingency in place. The Seller at that point can give the Buyer a Notice to Perform or Quit, but the Seller can’t just declare the Buyer in default or force them to close escrow or try to retain their deposit. The passive method definitely favors the Seller, and the active method definitely favors the Buyer.
Years ago, the California Association of Realtors (CAR) used the passive method in our contracts, but then agents lost a couple of lawsuits where the Buyer claimed the passive method wasn’t fair and the judge agreed. So now our standard CAR contract does use the active method. However, some banks (for bank-owned properties) and new home builders insist on their own contracts and they often use the passive method. So, if you are a buyer, you need to ask your agent which method of contingency removal applies. If it’s passive, you need to REALLY watch your deadlines.
If you have questions about real estate, call me at (925) 240-MOVE (6683). Voted “Best of Brentwood” multiple times. To search the MLS for free, go to: www.SharpHomesOnline.com. Sharp Realty. #01245186
