Q: I represent the Seller. I had specified in the MLS that the Seller only wanted “clean offers.” We received multiple offers but the offer that my Seller liked the most included a 5-day contingency to investigate; the Agent told me the clients just wanted to do some quick inspections. A Seller Counter Offer was issued that stated, “the Inspection Contingency is to be removed at the time of Acceptance.” The Buyers’ Agent assured me in an email when she got the Counter that she would send the Contingency Removal form immediately but all we received was the signed Counter Offer. Two days later, the Buyers sent us a Cancellation notice citing that their investigation revealed unacceptable issues in the neighborhood.
The Seller’s Attorney urged the Seller to accept the Cancellation; he believed the language in the Counter Offer was not precise because we used the term “Inspection Contingency.” He also said that by asking the Buyers to remove that contingency at a specific future time (i.e., date of Acceptance) that the Seller could not cancel the Agreement for a failure to remove that contingency without first giving the Buyers a Notice to Perform which meant that the Buyers automatically had a two-day contingency. That seems unfair to me. Is that a correct interpretation? If so, what should I have done differently?
A: Yes, the Attorney is correct. There is a viable argument that the Counter Offer was not accurate as to what was to be removed.
“INVESTIGATION” vs “INSPECTION” CONTINGENCY: The CAR Residential Purchase Agreement (“RPA”) provides for an “Investigation Contingency” which includes the concept of conducting “inspections,” among other defined investigations (See RPA paragraph 12). By referencing only the “inspections” rather than the full investigation contingency, the Buyers could have signed a Contingency Removal (“CR”) form only eliminating the inspection element but keep their right to conduct investigations in place. (See CR form paragraph 2.A(3) for three investigation contingency removal options.) (Note that the PRDS form uses the term “Inspection/Investigation Contingency” to avoid the confusion created by the different nomenclature in paragraph 16A.)
When Countering out a specific contingency, rather than all Buyer contingencies, the Seller’s Counter Offer needs to use exactly the same terminology for the contingency that is specified in the Purchase Agreement.
Any time it is stated that a contingency “is to be removed” at a future time raises the risk of creating the possibility that a contingency exists for at least for some period of time, and that would then trigger the need to issue a Notice to Perform to the Buyer (the CAR “NBP” form).
Note also that the CAR RPA (unlike the PRDS Real Estate Purchase Agreement) does not define “0” Days as being the equivalent of a waiver of a contingency. When using the the RPA, if there is “0” Days in paragraph 14.B for the Buyer to remove contingencies, the contingencies specified in that paragraph are still a part of the Agreement, and Seller must Deliver a NBP to Buyer to compel removal of the specified Buyer contingency(ies) prior to making any attempt to cancel the Agreement.
Therefore, when countering out contingencies (or countering anything else in an offer), the language in the Counter Offer needs to be precise and very clear; the Parties need to agree that the contingency(ies) have been removed or, even better, waived and that no further notices or forms are needed. Taking the time to include the proper language ends the debate.
PRACTICE TIPS:
- If the Seller wants to accept a Buyer’s offer but does not want the Buyer to have any or all contingencies, then a Counter Offer is needed which formally eliminates the contingencies.
- Make sure that the Counter Offer uses the exact terminology that is in the Offer to describe the contingency(ies).
- No one should rely on any statements or promises from a Buyer’s Agent (whether orally or in writing, such as an email) that the contingency(ies) will be removed because the Agent’s words and actions cannot change the terms of the Agreement between the Parties. Only the Parties can remove their contingencies and it must be done in a writing signed by that Party.
- The best practice and the simplest method when a Seller wants to counter out any or all Buyer contingencies is to use the following language:
Buyer and Seller understand, acknowledge and agree that the _____________Contingency [or All Buyer Contingencies] are hereby removed and/or waived and no further notice or other forms are required.
- Alternatively, the Seller’s Agent could prepare a Buyer Contingency Removal form that is attached to the Counter Offer which details the specific contingencies to be removed and then specify in the Counter Offer:
Buyer understands, acknowledges and agrees that Acceptance of this Counter Offer is subject to Buyer signing the attached Contingency Removal Form and returning it to Seller’s Agent concurrently with the signed Counter Offer.
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