When people make an offer to buy a house, it’s understandable they want assurances that the house is in good condition and there aren’t any nasty surprises lurking in the walls (or anywhere else). Also, most of us don’t have enough cash in the bank to buy a house outright, so we need to get a home loan, but we want to make the offer right now. For these reasons—and others—most offers come with contingencies. The question becomes: why on Earth would someone make an offer without any contingencies?

     In many parts of the state, it’s been a seller’s market, so sellers have had the luxury of choosing from multiple offers. Buyers desperate to have their offer accepted have been willing to take risks they would never dream of in a buyer’s market (when there are plenty of properties for sale).

     Non-contingent contracts do not give buyers the right to legally renegotiate or back out of an agreement, even if inspections reveal serious problems such as structural damage or pest infestations. Buyers also cannot cancel the contract if they find themselves unable to secure the home loan they need to buy the property. In that case, they may be forced to give up their deposit and/or possibly pay other damages to the seller, who may have lost the opportunity to sell the property to someone else.

     Many contracts come with a liquidated damages clause that defines in advance how much a seller is entitled to if the buyer defaults. This is a clause both parties have to opt in on (indicated by their initials on the sales agreement). This typically applies to sales of residential property with one-to-four units, which the buyer intends to occupy. The presumption is that the buyer’s deposit is a reasonable estimate of damages if the deposit does not exceed 3% of the purchase price. If the buyer has no contractual right to cancel and does so anyway, the buyer may be in breach and therefore forfeit the deposit.

     There is a way for buyers to legally back out of a contract, even without contractual contingencies. If the seller gives the buyer the required Transfer Disclosure Statement after the buyer submits the offer, the buyer can rescind the offer within five days after delivery of the TDS. If the TDS is modified during the transaction, then there would be a similar right to cancel following the update. What many people don’t realize  is that the TDS is not complete until the listing agent submits the findings from their visual inspection. So, if the TDS is submitted before the offer, but the real estate agent doesn’t include his or her visual inspection, the TDS is not legally complete.

     While contingencies protect buyers, a contract with too many contingencies can turn off sellers. That doesn’t mean a non-contingency contract is risk-free for sellers. Even if buyers are legally required to hand over their deposit after defaulting on a contract, it doesn’t mean they’ll do so without a legal fight. This can be expensive and time-consuming for everyone.

     There are three types of legal conflict resolution: mediation, arbitration, and litigation. Mediation is automatically included in real estate contracts, but arbitration must be agreed to by both parties, indicated by the initial of a specific clause.

     Mediation is a great option. It is almost always non-binding, so there’s no legal risk, and the focus is not on who’s right or wrong, but rather how to overcome differences. Mediators are often judges or lawyers, and they understand the law and can explain to the parties where their case would stand in court. This often gets things moving.

     Arbitration is more expensive than mediation but still far cheaper than litigation. It takes longer than mediation but less time than litigation. The big difference is that arbitration is binding. The potential downside here is that the rules of evidence aren’t as strict, and if an arbitrator makes minor legal mistakes, you just have to live with them.

     I recommend that buyers include the contingencies they feel really strongly about and leave out the rest.

     If you have questions about property management or real estate, please contact me at [email protected] or call (707) 462-4000. If you have an idea for a future column, share it with me and if I use it, I’ll send you a $25 gift certificate to Schat’s Bakery.

    Dick Selzer is a real estate broker who has been in the business for more than 45 years. The opinions expressed here are his and do not necessarily represent his affiliated organizations.