It's understandable that as a first time home buyer in San Jose, CA, purchasing that very first home is both exciting and scary at the same time. I work a lot with first time home buyer and one of the first topic of reassurance is to explain the key concept of contingency period.
California's contract has a contingency period built in that offers consumer protections. The best way to understand contingency period is the time frame in which a buyer is allowed to do his or her due diligence to ensure the home purchasing is the one that the buyer is satisfied. During this time, a home buyer has several contingencies: inspection, disclosures, and financing. Generally, contingency period ranges from 7 to 17 days, depending on what is agreed on a contract.
Inspection (discussed in inspection blog post) offers a chance for a home buyer to better understand the condition of the s/he intends to buy. inspections are done by selected professionals. Some common inspections include home, termite, and roof inspections. It's a buyer's choice to do as many inspections as s/he desires. However, inspections are generally a buyer's cost.
Disclosures are either seller-generated or third-party generated documents that disclose any relevant information about the property that may affect the property value. Sellers are required by law to disclose certain information, such as death on the premise within the last 3 years. Third-part disclosure source usually deals with natural hazard disclosure. Natural hazard disclosures inform buyers of any potential fire, earthquake, or flood near the home.
Financing contingency covers the necessary steps for buyers to obtain a mortgage. These include submitting any necessary applications and paperwork to lenders and ordering appraisal. Appraisal evaluates a home's value by a certified appraiser. If for some reason, the value of the home does not meet the sale price, then a buyer has few remedies: one, to cancel the contract without losing the deposit; two, to renegotiate with sellers; or three, to come up with the difference in the value and the price. 
All three contingencies are buyer's responsibility to complete. At the same time, these are in place to protect a buyer. A buyer can cancel a contract without losing the earnest deposit if s/he is dissatisfied with any of the investigations. For example, there may be too much termite damage for a buyer to bear financially. Another example may be the house is located in a high fire hazard zone.
Once the buyers are happy with all the investigations, then they're required to remove the contingencies. Once the contingencies are removed, buyers are buying the home. After the removal, if buyers change their minds, then there may be some consequences such as losing deposit or sellers may be entitled to other remedies.
If you have any further questions, please feel free to contact me for an obligation free consultation by phone!
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