Multiple Choice Question: You are the listing agent in a pending sales transaction using C.A.R.’s Residential Purchase Agreement (RPA). After the buyer’s investigation contingency expires, you help the seller serve a Notice to Buyer to Perform (NBP) to remove the buyer’s investigation contingency. Instead of removing the “Entire Buyer’s Investigation Contingency,” the buyer just removes “All Buyer Investigations (including insurability) other than the physical attributes.” Which one of the following statements is false? Pick the best answer:

A. The buyer can still cancel based on any physical attribute of the property.
B. The buyer can still cancel based on insurability.
C. The seller is not required to serve another NBP to remove the investigation contingency before the seller issues a cancellation.
D. The seller can issue a cancellation of the Agreement, but the seller must return the deposit to the buyer. 

Explanation of CR-B Form: As a little background, the formatting of the Buyer Contingency Removal (CR-B) form tracks the “Buyer’s Investigation” provision (paragraph 12) of the RPA. First, the buyer’s investigations include “any inspections regarding any physical attribute of the Property,” such as a home inspection or other inspection of the physical condition of the land and improvements (see RPA paragraph 12B(1)). Second, the buyer’s investigations also include an “Investigation of any other matter affecting the Property,” including insurability (see RPA paragraph 12B(2)).

In tracking that language in paragraph 12 of the RPA, paragraph 2C of the CR-B form gives the buyer 4 options for removing the investigation contingency. Option 1 is to remove the entire Buyer’s Investigation Contingency as provided in all of paragraph 12B of the RPA. Option 2 is to remove “inspections concerning physical attributes” as provided in paragraph 12B(1) of the RPA. Option 3 is to remove “Investigations (including insurability) other than the physical attributes” as provided in paragraph 12B(2) of the RPA. Finally, Option 4 is to remove the entire buyer’s investigation contingency, except for insurability. Option 4 was added to the CR-B in June 2023 to address the challenges buyers may face in securing affordable home insurance.

Answer: For today’s Multiple Choice question, Answer A is a true statement, so it’s not the correct answer. If a buyer removes the investigation contingency for “non-physical attributes” (under paragraph 12B(2) of the RPA), the buyer can still cancel based on “physical attributes” (under paragraph 12B(1) of the RPA). Yet, from a seller’s perspective, the buyer’s removal of the “non-physical attributes” portion of the investigation contingency, including insurability, may not be very meaningful to the seller. After all, buyers usually have no difficulty justifying a cancellation under RPA paragraph 12B(1)’s “physical attribute” portion of the investigation contingency.

Answer B is a false statement, and the correct multiple-choice answer. When a buyer opts for Option 3 (as discussed above), the buyer is removing the insurability aspect of the buyer’s investigation contingency. After removing that, the buyer can no longer cancel based on insurability.

Answer C is a true statement, but with one big caveat. It’s true that, if a seller properly serves an NBP to remove the buyer’s entire investigation contingency, and the buyer fails to do that within 2 days, the seller can issue cancellation instructions. However, the big caveat is that, from a practical perspective, it is generally a good idea for the seller’s side to at least notify the buyer’s side in an email that the seller is about to cancel unless the buyer removes the entire investigation contingency. Notifying the buyer’s side may avoid misunderstandings, and help resolve any outstanding issues.

Answer D is also a true statement with the same caveat discussed above that, in this type of situation, it’s usually better to give the other side a head’s up before issuing a cancellation. As for the deposit, if a seller cancels after serving an NBP, the seller must return the deposit back to the buyer according to paragraph 14C(1) of the RPA.

-Thank You to Bryce Garman (Laguna Beach Office) for suggesting this week’s legal tip!

Copyright© 2024 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 April 22, 2024. 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.