Most earnest money disputes that reach this office were decided weeks earlier, on the day the buyer signed a contingency removal. Until then, a buyer under the standard California Residential Purchase Agreement who cancels in good faith within a contingency is generally entitled to the deposit back. After it, the same cancellation can be a default, and the deposit becomes what the seller claims as damages. Removing contingencies is the moment a purchase stops being an option and becomes a commitment. It deserves more than a signature on the form your agent sends at 9 p.m. on the last day.
What removing a contingency actually does
Under the C.A.R. Residential Purchase Agreement (RPA), when you remove a contingency you are treated as having completed your investigations and reviewed the reports and disclosures that relate to it, elected to proceed with the purchase, and assumed responsibility for the repairs and corrections that relate to that contingency. It does not let the seller off the hook for what the seller still owes you: disclosing what the seller knows, maintaining the property in substantially the same condition until closing, and making any repairs the seller agreed to make. But it does end your right to walk away over the things the contingency covered.
The clock: 17 days unless your contract says otherwise
The current RPA sets default periods of 17 days for the loan, appraisal, investigation and insurance contingencies, and 7 days for the seller to deliver the reports and disclosures it owes you. Days are calendar days, the day of acceptance is day zero, and a period ends at 11:59 p.m. on its last day. Check your own contract: in a competitive market these periods are often shortened, and some offers waive contingencies altogether.
Under the RPA a contingency does not simply disappear when its period ends. You remove it in writing, usually on C.A.R. Form CR-B. If you have not removed it when the period ends, the seller cannot cancel right away; the seller must first deliver a Notice to Buyer to Perform, which gives you at least two days to act. That notice is a safety net, not a plan. Once it expires, the seller may cancel and sell to someone else.
The loan: a conditional approval is not a loan
Lenders issue approvals with conditions: documents still to be provided, an appraisal still to come in, a final verification of employment. If you remove your loan contingency and the loan then fails, the failure is generally your problem, not the seller’s. Before you remove it, ask your lender in writing which conditions are still open and whether any of them depend on something outside your control.
The appraisal: what happens if it comes in low
If the appraisal comes in below the price after you have removed the appraisal contingency, the lender will lend against the lower value, and you will have to make up the gap in cash or renegotiate with a seller who no longer has to agree. If the appraisal is not back by the deadline, ask for an extension in writing instead of removing the contingency on faith.
Insurance: get a policy you can actually bind
In parts of California, getting homeowners insurance has become difficult and expensive, especially in areas with wildfire exposure. Your lender will require a policy before it funds. Before you remove the insurance contingency, get a written quote you can actually bind at a price you can live with, and confirm that the lender will accept it.
Investigation: read everything before you sign it away
The investigation contingency covers the physical inspection and much more: the seller’s disclosures, the reports you ordered, permits, the neighborhood and anything else that affects your decision to buy. Before removing it, read every report in full, not just the summary page. Pull the permit history from the city. If the seller has not yet delivered the Transfer Disclosure Statement, the Seller Property Questionnaire or another document it owes you, do not remove the contingency to keep the deal moving. Under the RPA you can deliver a Notice to Seller to Perform, and the seller’s late delivery is the seller’s problem, not a reason to give up your rights. If a disclosure is delivered or amended after you have removed contingencies, you may have a short statutory right to terminate: three days after delivery in person, or five days after delivery by mail or electronically. That window is easy to miss.
Repairs: get the answer in writing first
If you asked the seller for repairs or a credit, do not remove the investigation contingency until the seller’s response is signed and in your file. A seller’s agent saying the seller “will take care of it” is not an agreement. Once you have removed the contingency, you have no leverage left to get one.
You do not have to remove everything at once
Contingencies can be removed one at a time. If your inspection is complete but the appraisal is not back, you can remove the investigation contingency and keep the appraisal and loan contingencies in place. If you need more time, ask for a written extension signed by both sides. An email from the seller’s agent saying “no rush” does not extend anything.
What is at stake: your deposit
If you default after removing contingencies, what the seller can keep depends largely on the liquidated damages clause. If both of you initialed it, the seller’s remedy is generally limited to the deposit you actually paid; and if the property is a home of one to four units you intended to live in, the amount the seller keeps is capped at 3 percent of the purchase price, with any excess returned to you. If the clause was not initialed by both sides, the seller may instead sue for actual damages, which can be more or less than the deposit. Know which situation you are in before you sign the removal. The earnest money deposit disputes page explains how these cases are resolved, and How to Get Your Earnest Money Deposit Back in California covers what to do if a purchase has already fallen apart.
A checklist for the day before
- Loan: written confirmation from the lender of every open condition.
- Appraisal: back, and at or above the price, or an extension in writing.
- Insurance: a bindable written quote the lender will accept.
- Disclosures and reports: all delivered and read in full, including the permit history.
- Repairs or credits: the seller’s signed response in your file.
- Deposit: whether the liquidated damages clause was initialed by both sides, and what it caps.
- Dates: what each contingency removal is due, and what the closing date is, on your own calendar.
How Jimmy can help
Jimmy Nguyen is a San Jose real estate attorney and a licensed California broker. As a buyer’s broker, he writes the offer, tracks every contingency date and tells you what you are giving up before you remove anything. Every contingency removal is a legal decision as much as a negotiating one, and it is made with an attorney who litigates these disputes. If you already have an agent, he can review your contract, the reports and the disclosures before you sign the removal. And if a purchase has already gone wrong, he represents buyers in recovering their deposits.
Email jimmy@lawjn.com with the property address and your contingency dates, or use the form below.