Q: We recently accepted an offer on our home in Pleasanton. The buyer appeared to be very strong, and wrote an offer with a short inspection contingency. When the buyer’s inspection contingency removal was due, they cancelled the agreement, and did not give an explanation. Can they do that? Can we keep their deposit? We are quite upset about this. Bill in Pleasanton
A: Bill, that is a great question. The contract (CAR purchase agreement) provides that during the inspection contingency the buyer may investigate the property, order inspections, review all associated documents, and due their due diligence. The contract stipulates that at the end of the inspection contingency period, the buyer may either remove their inspection contingency, or cancel the agreement. In the event the buyer elects to cancel the contract, there is no contractual requirement that the buyer give the seller an explanation, nor is there any requirement that the seller gets to approve their reason for cancelling in order to release the deposit. It is black and white. Unless and until the buyer removes their inspection contingency, their deposit is theoretically not at risk, as the contract allows the buyer to cancel the agreement. The only realistic argument a seller has would be if the buyer acted in bad faith, either by never intending to complete the purchase, or entering into contract on another property simultaneously, or somehow demonstrating bad faith in another fashion. However, keep in mind the old saying in legal circles; “It’s not what you know, but what you can prove”. Proving bad faith can be an extremely difficult and expensive endeavor.
One way to minimize this risk as a seller is to provide all disclosures and inspection reports up front to potential buyers, which generally leads to more serious offers and/or shorter inspection contingency periods. But there is no way to eliminate this risk entirely other than having the buyer write an offer waiving all contingencies, which is a big risk on the buyer’s part. Better to let it go and concentrate on getting another buyer. As always, when dealing with legal issues it is best to consult an attorney who can properly guide you in these matters