Buyer Contingencies in the Oregon Real Estate Contract – PointClickandPack.com
The Oregon Real Estate Sales Contract heavily protects buyers by giving them three standard contingencies, plus an appraisal contingency for financed offers, upon which they can terminate a sale and get a full refund of their earnest money. It’s important to note that once a home is sale pending, the sellers cannot get out of the contract without risking a lawsuit from the buyers for specific performance. Buyers cannot be sued by the seller for specific performance. If a buyer terminates a sale after all of the standard contingencies have been satisfied, then the buyer risks losing his/her earnest money in full as liquidated damages for keeping the seller’s house off the market while waiting for the buyer to perform. Here are the basics of each contingency:
The Seller’s Property Disclosure – 5 Business Days After Receipt of this Document
Prior to listing their home for sale, sellers fill out a five page property disclosure which lists everything they know about their home in check box format. (Ex: Has the roof leaked? Yes or No. If so, has the leak been fixed? Yes or No). Buyers have five business days after receipt of this disclosure to back out of the transaction for any reason (or no reason) whatsoever. This is the buyer’s right of revocation under OR law. If the seller (typically via the listing agent) does not provide the property disclosure until closing, then the buyers can back out of the purchase, keeping their earnest money, up until closing. Normally though, the disclosure is provided to buyers upon offer acceptance, so this contingency is satisfied within the first five business days of offer acceptance. In my experience, buyers rarely terminate a transaction based on information learned from the property disclosure. If they terminate on disclosure, it’s usually because they have found another home they want to buy instead, or have gotten cold feet about the purchase for some other reason. However, the property disclosure is the first place buyers check when problems arise during the transaction or after closing. And non-disclosure about issues that can be somehow proven that the sellers were aware of but didn’t reveal can lead to lawsuits. For this reason, it is imperative that sellers reveal everything they know about the home, during the time that they’ve lived in the home, on this form.
Home Inspection – 7-10 Business Days After Offer Acceptance
Buyers have the right to have the home inspected unless they specifically waive this right in the contract. The time frame for inspections is most typically 7 or 10 business days after an offer has been accepted. Business days begin the next day. Ex: If an offer is accepted at 8:00 am Monday, the time frame for all contingencies would begin on Tuesday. Additionally, unless stated otherwise, the deadline for all contingencies is 5:00 pm on the final day. Once the buyers have obtained all desired inspections, they have three options: (1) Remove the inspection contingency and proceed to closing without asking the seller for any repairs; (2) Unconditionally disapprove of the inspection and terminate the sale; (3) Write up a repair addendum asking the sellers to make repairs and/or reduce the sales price (or provide a credit towards closing costs) in lieu of repairs. If agreement is not reached on the repair addendum, the buyers have the right to terminate the sale. The sellers do not have the right to terminate. However, they can refuse to do any repairs or provide any closing cost credits or price reductions. They could simply revert back to the original accepted offer and perform accordingly. (Please see my other Blog article about the types of inspections available).
Preliminary Title Report – 5 Business Days for Escrow to Send, and then 5 Business Days for Buyer Review
The preliminary title report (prelim) is generated by the escrow company and is emailed out to all parties in the transaction within five business days of the opening of escrow. This is most typically effectuated within 1-2 business days after offer acceptance and is handled by one or both of the realtors involved in the sale. The prelim shows all of the following information (and more): Liens against the home; Easements affecting the property; Judgments against the buyers and sellers (child support/alimony/court judgments); Taxes due or paid; Codes, Covenants & Restrictions, (CCR’s) and Bylaws for condominium and townhouse complexes; Legal property description; Filed litigation affecting the property, etc. Once the buyers receive the prelim, they have five business days to challenge it. Unlike the property disclosure where the buyer does not need a reason to terminate, if the buyer wants to terminate based on the information learned from the prelim, they must have a reason for doing so and this reason must be one that the seller cannot or will not agree to remedy. For example, if there is a contractor lien on the property and the sellers agree to pay the lien at closing, then this item is considered satisfied and the buyers cannot terminate for this reason. If the sellers do not agree to pay the lien and the buyer does not want to pay it, then the buyers can terminate the sale and get their earnest money back. An example of an issue that the seller would not be able to remedy would be any item featured in the CCR’s for the complex or neighborhood. If the complex does not allow dogs, the seller will not be able to change that issue, so the buyer can choose to terminate at this point if they want to keep their dogs. Utility company or fire hydrant easements are not considered to be valid reasons for termination. Nor would any item that would have been easily recognized or already disclosed prior to offer acceptance (ex: a shared driveway).
For buyers obtaining a loan to make their purchase, the lender will require a property appraisal. The appraisal is typically the final step in the sales transaction. This report is normally ordered after the inspection contingency has been satisfied. For conventional or FHA loans, it takes approximately 2 1/2 weeks from the date ordered for the appraiser to schedule the appraisal visit, complete the home valuation report and submit it to the lender. VA loans take about 2 weeks longer. If the home appraises at or above the sales price, then the sale moves forward to closing. If the appraisal price comes in below the sales price, then the buyer and seller have the following options; (1) Challenge the appraisal by sending in different comps or disputing information in the original appraisal report in hopes that the appraiser will increase the appraised value to the sales price or higher; (2) The seller can agree to lower the sales price to the appraised value and the sale will continue at the lower price; (3) The buyers can bring in the difference in the appraised value and sales price in addition to their original down payment. For example, if the sales price is $250k but the appraisal comes in at $240k, the buyers can choose to continue with the transaction by bringing in another $10k at closing on top of the down payment needed to fund their loan. If the above options lead to a stalemate by the parties and the appraiser is unwilling or unable to adjust his/her value to meet the original sales price, then the buyers can terminate and get their earnest money refunded.
One final note: Other than the appraisal contingency, the three main contingencies typically run concurrently within 10 business days of offer acceptance. Thus, if buyers want to terminate within the first 10 business days, usually they can get a full refund of their earnest money. However, once all contingencies have been satisfied and the appraisal has come in at or above sales price, then terminating buyers typically forfeit their earnest money to the sellers.
Feel free to contact me with questions about the Sales Contract. You can reach me at Phyllis@PointClickandPack.com or 503-421-2407. I look forward to hearing from you!