Don’t Lose Your Deposit Money – Contingencies

Because of the competitive situation in the San Francisco Bay Area, some agents are writing offers without any contingencies. Or listing agents are telling buying agents that in order to be considered, the offer should have no contingencies. Contingencies protect the buyer’s deposit money in case buyer wants to cancel. Remember that in a real estate deal the buyer puts up a deposit and the seller puts up the house.

What contingencies? Physical, appraisal, and loan. The buyer must remove these contingencies in writing for the deal to go forward. Usually. When there are such contingencies buyer has no protections.

When there are no contingencies, should something happen, i.e. the buyer found out it’s going to cost too much to make repairs, or the house doesn’t appraise (bank says it’s worth less than what buyer is offering) and the buyer wants to back out. Ouch. Buyer may lose part or all of his deposit money. Or the money may get tied up as buyer and seller signatures are needed to release the money.

An agent asked me should we go NO contingencies? I said, “Make sure the buyer understands that there is risk to his deposit. Put something in writing to that fact. Don’t give the buyer the chance to say it wasn’t explained clearly or outright lie and say you never told him he could lose his money.”

Remember too, that after the contract is cancelled, agents may intercede on behalf of the clients only for a short while. After a cancelled contract, all agency is over. Buyer and sellers have to work out any problems and that may go by way of small claims court or lawyers and court. If less than $10,000 in the SF Bay Area, it can go to small claims.

Moral of the story. Offers without contingencies are OK. Just make sure the buyer understands the risk to his deposit money. And that agents are out after cancelling a purchase. Buyer will have to go at it on his own to recover his deposit money.