By Lisa Smith & Co
Contingencies are among the most consequential parts of any real estate transaction, and also among the most misunderstood. For buyers, they are the provisions that allow you to exit a contract under specific conditions without losing your deposit. For sellers, they are the conditions that must be met before the sale can close. In a market like Mill Valley and Marin County, understanding contingencies in real estate is essential before you make or accept an offer.
Key Takeaways
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The three most common contingencies in a California purchase agreement are inspection, loan, and appraisal
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Each contingency has a defined period during which the buyer has the right to investigate, and removing it before the deadline is a deliberate decision with real consequences
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In competitive markets, buyers sometimes waive contingencies to strengthen their offers, and understanding the risk of doing so is essential
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Sellers in California are required to disclose known material defects regardless of whether a buyer has waived their inspection contingency
The Inspection Contingency
The inspection contingency gives buyers the right to evaluate the property and to request repairs, negotiate a credit, or exit the contract based on what they find. In California, this period is negotiated in the purchase agreement and typically runs seven to seventeen days. During that window, buyers complete their inspections and review seller disclosures, which in Marin County routinely include a Transfer Disclosure Statement, a Natural Hazard Disclosure report, and local wildfire and geologic risk disclosures.
What Buyers Should Know About the Inspection Contingency
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The inspection contingency is the buyer's primary window for learning the true condition of the property, and the decisions made during it have consequences that extend well past closing
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Removing the inspection contingency does not mean waiving the right to inspect; buyers should complete inspections before removing it, since the contingency is what allows them to act on what they find
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Some buyers conduct pre-offer inspections when permitted, allowing them to remove the inspection contingency in their offer while still completing due diligence
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Older Mill Valley properties with hillside siting and original systems often benefit from specialist evaluations for drainage, retaining walls, and roofing beyond a standard general inspection
The Loan Contingency
The loan contingency protects financing buyers by giving them a defined period to secure final loan approval. If the buyer cannot obtain financing on the terms specified in the purchase agreement, this contingency allows them to cancel and recover their deposit. In California, the loan contingency period is typically 21 days and negotiable. Buyers who remove it before receiving final underwriting approval risk forfeiting their deposit if financing falls through.
What Buyers and Sellers Should Understand About the Loan Contingency
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The loan contingency is separate from pre-approval — pre-approval is a lender's preliminary assessment, while the contingency period is when final underwriting occurs
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Buyers who have gone through full pre-underwriting before making an offer can remove their loan contingency earlier, which strengthens their offer significantly
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Cash buyers have no loan contingency, which is one reason all-cash offers are frequently preferred in competitive Marin County markets
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Sellers evaluating offers with loan contingencies look closely at the lender, down payment size, and pre-approval type as indicators of how likely the loan is to close on time
The Appraisal Contingency
The appraisal contingency protects buyers if a property appraises below the purchase price. Since lenders base loan amounts on appraised value rather than contract price, a low appraisal can create a gap between what the lender will finance and what the buyer agreed to pay. In Marin County, where homes frequently sell at or above asking price, appraisal gaps are a real consideration, and buyers should understand their options before waiving this protection.
How the Appraisal Contingency Works in Practice
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If a property appraises low, the buyer can renegotiate the price, cover the gap out of pocket, or cancel and recover their deposit
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Buyers who waive the appraisal contingency commit to the agreed price regardless of the appraisal result, which requires sufficient cash reserves to cover a potential gap
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Buyers sometimes waive the appraisal contingency to strengthen their offer when they have confidence in the property's value and funds to bridge a gap if needed
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Lenders still require an appraisal even when the contingency is waived
Other Contingencies Worth Knowing
California purchase agreements can include additional contingencies beyond the three primary ones. A sale contingency makes the purchase conditional on closing an existing home, though this is difficult to compete with in strong markets. A title contingency gives buyers the right to review the title report and object to encumbrances, easements, or liens. Buyers should review any contingency they are agreeing to or waiving with full understanding of what protections they are accepting or giving up.
Additional Contingencies That May Appear in a California Purchase Agreement
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A sale contingency makes the purchase conditional on the buyer selling an existing property and is generally considered a weak offer term in competitive markets
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A title contingency gives buyers the right to review and approve the preliminary title report before removing this protection
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HOA contingencies, where applicable, give buyers time to review the association's governing documents, financials, and meeting minutes before committing to the purchase
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Buyers can negotiate custom contingencies for specific concerns though these must be agreed to by the seller
FAQs
Is it ever smart to waive contingencies in Mill Valley?
It depends on the buyer's financial position and the competitive dynamics of the specific situation. Waiving contingencies reduces buyer protections if something goes wrong, and the decision should always be made with a full understanding of the risk involved.
Can a seller back out if a buyer removes all contingencies?
In California, once a buyer removes all contingencies, the seller generally cannot cancel without consequence. Sellers can cancel if the buyer fails to perform, such as not closing on time, but the specifics depend on the terms of the purchase agreement.
What happens to the earnest money deposit if a contingency is not met?
If a buyer cancels during an active contingency period for a covered reason, the deposit is generally refundable. If a buyer cancels after removing a contingency, the deposit is typically at risk, which is why removing contingencies is one of the most consequential decisions in a transaction.
Contact Lisa Smith & Co Today
At Lisa Smith & Co, we work with buyers and sellers across Mill Valley and Marin County to make sure every contingency decision is made with full information.
Reach out to us at Lisa Smith & Co when you are ready to talk through your next transaction.
Reach out to us at Lisa Smith & Co when you are ready to talk through your next transaction.
