CAR Contingency Removal Form-Gaming the Transaction

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Services for Real Estate Pros with Escrowcoord.com
https://activerain.com/droplet/4RwN


Gaming the SystemRecently, I had a lively debate with one of my very sharp brokers (my hubby) regarding the removal of the inspection contingency on the CAR-CR form.

His argument was, if the inspection contingency is removed but the disclosures, reports, HOA docs, title report are not, then the buyer COULD cancel the contract if these documents do not meet approval and retain their deposit. He is correct but there is another angle to it.

As one of the original authors of the Contingency Removal form, I do understand the intent and how it’s to be used.

When the contract committee first created the architecture of the contract, we began with only the loan and contingency removal. However, a few of the agents on the team acknowledged that they frequently will remove other items (which are part of the contract) separately as well.

For example, say the buyer is unable to provide the loan contingency in a timely manner to the seller. So in good faith, the buyer instead removes the appraisal contingency, showing the seller that the loan is at least moving in the right direction.

Note that a loan contingency can never be removed BEFORE the appraisal contingency (if it's a contractual obligation) since the property must appraise out before a lender will issue loan approval.

We use this same logic when removing the inspection contingency. If there is a delay removing it, the buyer can option to remove other contingencies such as reports and disclosures to help show they ARE interested in moving forward.

In order for a buyer to remove a physical inspection contingency, it makes sense that in addition to performing inspections of the property, they should also review reports and disclosures provided by the seller to ascertain if additional inspections are warranted such as a termite report from the seller that calls for further inspections.

So, removal of the inspection contingency but withholding removing reports and disclosures, for example, doesn’t make sense from a contract perspective.  Can a buyer “undo” the inspection contingency removal and cancel the contract in the event the seller provides a report after the fact? I suppose, but why muddy the waters that involve deposits and liquidated damages?

If you want to game the transaction, go ahead and remove some of the other contingencies like HOA, title report and disclosures/reports before you remove the inspection contingency. 

Make sure your buyer has had the opportunity to review and approve all seller required disclosures and reports and be allowed time to perform and review their own investigations prior to removing this important contingency. 

 

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Topic:
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Groups:
Realtors®
Everything California
Real Estate Mega Agents
Tags:
inspections
disclosures
deposit
reports
real estate
liquidated damages
contingency removals

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Rainer
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Riva Gambash
Addisleigh Park, NY

After reading your post and from my expireance I would recommend that buyers and sellers as well in the residential real estate should start adopt the commercial buyers approach and to start their offer with an LOI. The CAR forms are too complicated for sellers and buyers to understand and to many real estate agents as well who do not know how to explain the legality text in the CAR form offer. I have seen many transactions that end up in court just because the buyer was not aware on what he/she signed on. Starting your offer with an non binding LOI can and will save many problems in the process and can save time and money for both sides the seller and the buyer. The problem is within the those agents who want a fast binding offer to finish the transaction fast to get pay and from those sellers who are not savvy. Sellers and buyers are lack of real education in real estate and I put the blame on many real estate agents who are looking into their commission first.

May 11, 2016 11:05 AM #1
Rainmaker
58,557
Diana Turnbloom
Escrowcoord.com - Martinez, CA
The Leading Expert in TC Services & Education

Thanks for your comment Erez! Here in California there is a lot of competition to get buyer's offers accepted (20 offers on one property) so Letter of Intent (LOI) may not work. Although getting paid is important to many agents, I believe the majority of them are also very concerned about litigation, keeping clients for life and hold pretty high ethical standards. I agree that education for both the agents and buyer/seller is always the best way to create win/win transactions. 

May 12, 2016 03:19 AM #2
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Rainmaker
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Diana Turnbloom

The Leading Expert in TC Services & Education
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