Background: As a reminder, C.A.R. recently released a new Buyer Contingency Removal (CR-B) form that is mostly the same as it was before. One notable revision, however, is that a buyer now has more options to check when removing the investigation contingency. The buyer can now remove the investigation contingency, except for fire and/or flood insurance (see paragraph 2C(4) of the CR-B).

Fact Pattern: A buyer in a pending sales transaction has a 17-day investigation contingency. On Day 17, the seller serves the buyer with a 2-day Notice to Buyer to Perform (NBP) to remove the investigation contingency. Right before the expiration of that 2-day timeframe, the buyer uses the newly-revised CR-B form to remove the “Entire Buyer’s Investigation Contingency, EXCEPT Fire Insurance and Flood Insurance.”

Multiple Choice Question: Can the seller cancel? Pick the best answer:

A. Yes, because the buyer has not removed the entire investigation contingency.
B. No, because the seller must first serve another NBP for the buyer to remove the fire/flood insurance contingencies.
C. No, because the buyer’s failure to obtain insurance is out of the buyer’s control.
D. No, if the buyer is acting in good faith to obtain fire and flood insurance. 

Answer: The RPA specifically states that the buyer’s investigation contingency includes the buyer’s investigation into the availability and cost of homeowner’s insurance (see RPA paragraph 12B(2)). That underlying agreement does not change, regardless of whether the buyer can use a CR-B form to remove the investigation contingency, but not the fire/flood insurance portion of that contingency. The buyer has the prerogative not to remove the fire/flood portion of the investigation contingency. However, the seller can cancel (see RPA paragraph 14C(1)). Answer A is the correct answer.

That said, as the listing agent in this situation, your seller may want you to first check to see what’s going on with the buyer’s side before cancelling (if the circumstances allow for that). After all, if this buyer is having difficulty getting insurance, the seller should consider the possibility that cancelling on this buyer could just mean that the seller ends up in escrow with another set of buyers who also have difficulty getting insurance.

Answer B is wrong. The seller’s initial NBP for the buyer to remove the investigation contingency was valid. If the buyer fails to remove the fire/flood portion of that investigation contingency, the seller can cancel as according to paragraph 14C(1) of the RPA.

Answer C is wrong. The buyer bargained for a 17-day investigation contingency. Any delay caused by the insurance agents has already been contractually determined to be a risk for the buyer, not seller. If you are a buyer’s agent for a property in a fire or flood hazard area, be sure to tell your buyer-client to look into the insurability of the property as soon as possible.

Answer D is wrong. Nothing in the RPA gives the buyer an automatic extension to the investigation contingency period just because the buyer is acting in good faith to get insurance, but unable to get it yet. However, as the buyer’s agent in this situation, you may want to try to show the seller’s side how hard your buyer is working to get insurance in your effort to persuade the seller’s side to wait a little longer, rather than cancel.

-Thank You to Jill Krutchik (Sherman Oaks Office) for suggesting this week’s legal tip!

Copyright© 2023 Berkshire Hathaway HomeServices California Properties (BHHSCP). All rights reserved. Any unauthorized reproduction or use of this material is strictly prohibited. This information is believed to be accurate as of July 17, 2023. It is not intended as a substitute for legal advice in individual situations, and is not intended to nor does it create a standard of care for real estate professionals. Written by Stella Ling, Esq.