TL;DR — Key Takeaways
- Real estate contingencies California buyers rely on are creatures of the purchase agreement, not of statute. No provision read for this article creates an inspection, appraisal or loan contingency, fixes its length, or supplies a default rule if the agreement is silent. The executed form governs, and this article states no day count from it.
- Three statutory overlays bind regardless of what the form says: the disclosure-delivery termination windows in Civil Code sections 1102.3 and 1103.3(c), the liquidated damages chapter at sections 1671 and 1675 to 1681, and the broker’s duty and its two-year clock at sections 2079, 2079.3 and 2079.4.
- A late contingency removal is not the same as a forfeited deposit. The seller’s route to the money runs through the liquidated damages chapter, and section 1677 invalidates the provision entirely unless it was separately signed or initialed by each party and, in a printed contract, set in at least 10-point bold type or contrasting red print in at least eight-point bold type.
- The 3 percent line does real work. Under section 1675(c), an amount actually paid that does not exceed 3 percent of the purchase price is valid unless the buyer proves it unreasonable; under subdivision (d), an amount above 3 percent is invalid unless the party upholding it proves it reasonable.
- No statute read for this article creates or governs a notice to perform. It is a contract mechanism, and its function is to establish the default that a cancellation and a deposit claim depend on.
- Section 1679 fixes the direction of the whole chapter: it applies only to liquidated damages to the seller if the buyer fails to complete. It gives a buyer no right to a deposit; it limits what a seller may keep.
The Direct Answer
California contingencies are contract terms in the purchase agreement rather than statutory rights. They let a buyer investigate, obtain financing and confirm value, and they are removed by the method and within the period the agreement specifies. Civil Code sections 1675 to 1681 then limit what a seller may retain from a defaulting buyer’s deposit.
Real Estate Contingencies California: Why the Contract Governs and the Code Barely Speaks
Because the Legislature never wrote a contingency statute.
This is the first thing to understand and the last thing most articles admit. Nothing read for this article – and the reading covered the transfer disclosure article, the natural hazard article, the broker duty article and the whole liquidated damages title – creates a physical investigation contingency, an appraisal contingency or a loan contingency, sets how many days any of them lasts, or says what happens if the agreement does not address removal. Those are terms of the executed purchase agreement. Read that document; do not read a general article, including this one, as a substitute for it.
Three statutory overlays do bind, and they are the parts worth learning because they do not change from deal to deal.
| Question | Governed by |
|---|---|
| Which contingencies exist, how long they last, how they are removed | The executed purchase agreement |
| Whether a late disclosure creates an independent right to terminate | Civ. Code Secs. 1102.3 and 1103.3(c) |
| What a seller may retain from a defaulting buyer’s deposit | Civ. Code Secs. 1671 and 1675 to 1681 |
| What the brokers owed and how long a claim survives | Civ. Code Secs. 2079, 2079.3 and 2079.4 |
The first overlay is the one people miss. Section 1102.3 provides that where a required transfer disclosure, or a material amendment of one, is delivered after the execution of an offer to purchase, the buyer has three days after delivery in person, or five days after delivery by mail or by an electronic record, to terminate the offer by written notice to the seller or the seller’s agent. Section 1103.3(c) gives the same windows for the natural hazard disclosure. Sections 1102.9 and 1103.9 allow a disclosure to be amended in writing and make the amendment subject to those delivery rules. That right is statutory, it does not depend on any contingency, and it can arise after a contingency has been removed.
What Contingencies Protect a California Buyer and How Long Do They Last?
As long as the agreement says, and the categories are functional rather than statutory.
The common categories are recognizable across forms even though their names and periods are not fixed by law: a physical investigation of the property, review of the seller’s disclosures and reports, review of title and the preliminary report, a loan contingency, an appraisal contingency, review of the association’s governing documents and financial disclosures where the property sits in a common interest development, and occasionally the sale of the buyer’s existing home. Each is a condition to the buyer’s obligation to proceed, and each has a period and a removal method the contract fixes.
Because the periods are contractual, three things follow that people learn the hard way. The clock usually starts from a date the agreement defines rather than from the date something arrives on the buyer’s desk. Removal is usually a document, not a state of mind. And the party who must act to keep the contingency alive is the party who loses it by silence, whichever way the form is drafted.
The statutory overlay runs alongside all of it. If the seller’s disclosure package, or a material amendment to it, lands after the offer was executed, sections 1102.3 and 1103.3(c) start their own three-day or five-day clock, measured from delivery and terminating the offer by written notice. That is a right the buyer holds independently of the investigation contingency, and it is the reason the date a disclosure was actually delivered belongs in the file.
What Happens When a Buyer Fails to Remove Contingencies on Time?
Not automatic forfeiture. What follows is a contract sequence, and the deposit is a separate question with its own statute.
Whether a contingency lapses on its own, or survives until the seller acts, is determined by the agreement. Some forms make removal an affirmative act the buyer must take; others make the contingency expire. This article does not tell you which yours does, and the difference decides who has to move next.
What is clear is what a lapse does not do. A missed removal date does not by itself transfer the deposit to the seller. The seller’s path to the money requires the buyer to be in default under the agreement and requires a liquidated damages provision that complies with the Civil Code. Section 1677 is unforgiving about that compliance: a provision liquidating the seller’s damages on the buyer’s failure to complete the purchase is invalid unless it is separately signed or initialed by each party, and, where it appears in a printed contract, unless it is set out either in at least 10-point bold type or in contrasting red print in at least eight-point bold type. Section 1678 adds that where more than one payment is to constitute liquidated damages, any payment after the first is valid only if the total satisfies section 1675 and a separate section 1677 provision is separately signed or initialed for that subsequent payment – which is what an increased-deposit provision needs and often lacks.
So the practical order of events after a missed date is: read the agreement to see whether the contingency lapsed or persists; look at whether the initials and the type requirements in section 1677 were actually met; and treat the deposit as an open question rather than a settled one.
What Is a Notice to Perform and How Should Each Side Respond?
It is a contract mechanism, and no statute read for this article creates it or governs it.
That refusal is deliberate. A notice to perform is a written demand that the other party carry out a specified contractual obligation – most often removing a contingency, depositing funds, or signing a document – within a period the agreement fixes. Its legal work is to put the recipient in default if the period passes without performance, which is what a later cancellation and any deposit claim rest on. But the form of the notice, the length of the period, the method of delivery, who may sign it and what counts as compliance are all terms of the executed agreement, and they vary. This article states none of them.
What can be said without a statute is procedural discipline, and it applies to both sides. Respond in writing rather than by phone or text unless the agreement permits otherwise. Respond inside the period, counted the way the agreement counts it. Deliver to the person and by the method the agreement designates, because service on the wrong person is a common and expensive error. And do the thing demanded if it can be done, because performance is a better answer than an argument about the notice.
One question this article will not answer: whether performance after the period has run is still effective. That turns on the agreement’s language and on how a court would construe it, and it is exactly the kind of question that should not be resolved from a general article.
Can a Buyer Walk Away and Keep the Deposit After Contingency Removal?
The statute does not answer that question. It answers the opposite one – what the seller may keep.
Section 1679 is the provision that fixes the direction of the whole chapter: it applies only to a provision for liquidated damages to the seller if the buyer fails to complete the purchase of real property, and the validity of any other liquidated damages provision is determined under section 1671. So where a buyer canceled validly under the agreement, the chapter is not engaged and the deposit is a contract question. Where the buyer is in default, the chapter limits what the seller may retain.
| Situation | The rule |
|---|---|
| Residential, amount actually paid does not exceed 3 percent of the purchase price | Valid to the extent actually paid unless the buyer establishes the amount is unreasonable, Civ. Code Sec. 1675(c) |
| Residential, amount actually paid exceeds 3 percent | Invalid unless the party seeking to uphold it establishes the amount is reasonable, Civ. Code Sec. 1675(d) |
| Real property that is not residential under Sec. 1675(a) | Valid if it satisfies Sec. 1677 and Sec. 1671(b), per Civ. Code Sec. 1676 |
“Residential property” is defined narrowly in section 1675(a): a dwelling containing not more than four residential units, where at the time the contract was made the buyer intended to occupy the dwelling or one of its units as a residence. An investor buying a fourplex to rent is outside that definition, and section 1676 sends the analysis to sections 1677 and 1671(b) instead – where a liquidated damages provision is valid unless the party seeking to invalidate it establishes that it was unreasonable under the circumstances existing at the time the contract was made.
Three more details from section 1675 change outcomes. Subdivision (b) makes the provision valid only to the extent payment in the form of cash or a check, including a postdated check, was actually made – so an unfunded deposit is not liquidated damages. Subdivision (e) requires reasonableness to be judged on both the circumstances existing when the contract was made and the price, terms and circumstances of any subsequent sale of the same property made within six months of the buyer’s default; a seller who resold quickly at a higher price has a harder argument. And subdivision (f) imposes a distinct regime on the initial sale of a newly constructed attached condominium unit in a structure of ten or more units where the seller retains more than 3 percent: an accounting of costs and revenues within 60 calendar days after the final close of escrow of the unit, a duty to make reasonable efforts to mitigate, a refund of anything retained above the greater of 3 percent or the seller’s actual losses, and that refund sent to the buyer’s last known address within 90 days after the final close of escrow of all the residential condominium units in the structure.
Two boundaries close this out. Section 1680 provides that nothing in the chapter affects a right to obtain specific performance that a party may have – and Civil Code section 3389 makes the point from the other direction, that a contractual provision for liquidated damages is not a bar to specific performance. Section 1681 excludes real property sales contracts as defined in section 2985 from the chapter entirely.
How Do Appraisal Gaps and Loan Denials Play Out in California Deals?
Contractually, and the statutes only reach the consequences.
Start with the legal position, because it is short. No provision read for this article creates an appraisal contingency or a loan contingency, and a low appraisal or a loan denial does not by itself excuse a buyer’s performance. It has that effect only because the agreement makes the financing or the valuation a condition. If the agreement does, the buyer’s exit is governed by that condition and its deadline. If it does not, or if the condition has already been removed, the buyer who fails to close is in default and the deposit question moves to sections 1675 to 1681.
The rest is practical observation rather than law, and is offered as such. An appraisal gap is a cash question: the difference between the contract price and the appraised value has to come from somewhere, and the choices are more down payment, a renegotiated price, a different loan structure, or cancellation if a live condition permits it. A loan denial is a timing question: what matters is whether the denial and the buyer’s notice land inside the contingency period, not whether the denial was fair. And a lender’s appraisal is the lender’s view of collateral, not an adjudication of what the property is worth between the parties.
Nothing in the statutes read for this article governs how an appraiser works, how an underwriter decides, or what a lender must accept. No appraisal standard, underwriting guideline or secondary-market rule is asserted here. Ask the lender in writing what it will do with a gap, and get the answer before the contingency period closes rather than after.
When to Bring Counsel In
While a period is still running. Almost every question in this area becomes cheaper before a deadline and much more expensive after one.
For a buyer, the moment is when a report, an appraisal or a loan decision points against closing and the removal date is close. That is a contract decision with a fixed clock, and the options narrow to nothing when it expires. For a seller, it is on receipt of a cancellation the seller does not accept, because the deposit claim that follows depends on the buyer being in default and on a liquidated damages provision that complies with section 1677 – and the initials and the type size are checkable in an afternoon. For either side, it is on receipt of a notice to perform, because that document exists to create a default and responding to it correctly is largely a matter of method and timing. And for both, it is when a disclosure or a material amendment arrives late, because sections 1102.3 and 1103.3(c) give a right that has nothing to do with the contingencies and expires in three or five days.
Adjacent questions are covered separately: when a seller can legally keep your deposit, what to do when a seller failed to disclose a defect, what a buyer without an agent has to handle alone, and what the hazard disclosures a buyer receives are required to reveal.
Work with Bay Legal
Bay Legal, PC advises California buyers and sellers on contingency removal, notices to perform, cancellation, and deposit disputes, including whether a liquidated damages provision was validly made in the first place. If a removal date is approaching and the reports are not clean, or a deposit is being held after a cancellation, call (650) 668-8000 in Northern California or (213) 668-8000 in Southern California, or schedule a consultation at https://baylegal.com/contact-us/.
Frequently Asked Questions
What contingencies protect a California buyer and how long do they last?
The categories are recognizable across forms – physical investigation, review of disclosures and reports, title and preliminary report review, loan, appraisal, association documents in a common interest development, and sometimes the sale of the buyer’s existing home – but they exist because the purchase agreement creates them. No statute read for this article establishes any of them or fixes a period, so the length comes from the executed form. One statutory right runs alongside them: a disclosure or material amendment delivered after the offer was executed starts a three-day or five-day termination window under Civil Code sections 1102.3 and 1103.3(c).
What happens when a buyer fails to remove contingencies on time?
Whether the contingency lapses on its own or survives until the seller acts is a question about the agreement, not the code. What a missed date does not do is transfer the deposit. The seller’s claim requires the buyer to be in default and requires a liquidated damages provision that complies with Civil Code section 1677 – separately signed or initialed by each party and, in a printed contract, in at least 10-point bold type or contrasting red print in at least eight-point bold type. Section 1678 imposes the same formality separately on any increased deposit.
What is a notice to perform and how should each side respond?
It is a written demand that the other party perform a specified contractual obligation within a period the agreement fixes, and its purpose is to put the recipient in default if the period passes. No statute read for this article creates or governs it, so its form, period, delivery method and effect all come from the executed agreement. Respond in writing, inside the period, to the person and by the method the agreement designates – and perform the obligation if it can be performed, because that is a better answer than an argument about the notice.
Can a buyer walk away and keep the deposit after contingency removal?
The liquidated damages chapter does not answer that. Civil Code section 1679 applies it only to liquidated damages to the seller where the buyer fails to complete, so where the buyer canceled validly under the agreement the deposit is a contract question. Where the buyer is in default, section 1675(c) makes an amount at or under 3 percent of the purchase price valid unless the buyer proves it unreasonable, and subdivision (d) makes an amount above 3 percent invalid unless the party upholding it proves it reasonable.
How do appraisal gaps and loan denials play out in California deals?
Contractually. No provision read for this article creates an appraisal or loan contingency, so a low appraisal or a denial excuses performance only because the agreement makes valuation or financing a condition, and then only within that condition’s deadline. If the condition is gone, a buyer who does not close is in default and the deposit is analyzed under sections 1675 to 1681. The gap itself is a cash problem and the denial is a timing problem; no appraisal or underwriting standard is asserted in this article.
