For some Buyers, it may be necessary to sell their current residence in order to make the down payment on a new property or to satisfy lending requirements. When this is the case, the real estate licensee should talk to their Buyer clients about whether they need to include a contingency as part of the purchase contract for the new home. If so, it is recommended that C.A.R. Standard Form COP (Contingency for Sale of Buyer’s Property) be used. Let’s review the key points:
Contingency for Sale of Buyer’s Property (COP)
To make a real estate transaction contingent on the sale of the Buyer’s property, in the Residential Purchase Agreement (“RPA”) agents should mark the box in Section 3L. In addition, they should also complete form COP, which states at the top that it is an addendum to the RPA (unless the box is checked, and a different contract is described).
Paragraph #1 — Three different contingency choices
Form COP describes 3 different choices for this contingency that helps protect Buyers by giving them the right to cancel the purchase agreement for the new home and get their deposit back if they are unable to sell their current home:
Enter into contract and close: 1.A. (the default language): The Buyers will enter into a contract for the sale of their property and close escrow on that property.
Only Enter into contract: 1.B. (checkbox option): The Buyers will only enter into a contract for sale of their property.
Only close 1.C. (checkbox option): The Buyers will only close escrow for the sale of their property which is already in escrow (additional information about the open escrow must be filled in).
Paragraph #2 — How much time do the Buyers have to sell their home?
Per the default language in the COP, paragraph #2 gives the Buyer 17 days to enter into a contract to sell their current home. In addition, per the default language, the Buyer has the earlier of either: 1) the time stated in paragraph 2.A., or 2) 2 Days after Buyer enters into the contract to sell Buyer’s property– in order to deliver a copy of that contract and escrow information to the Seller. The parties can mutually agree to a different time periods than these default COP terms.
Paragraph #3 — What is the MLS and listing information on Buyer’s current home?
If COP paragraph 1.A. or 1.B. was checked, then Paragraph #3 must be completed. This paragraph provides information about the status of Buyer’s listing of their current home and submission of the listing to the Multiple Listing Service.
Paragraph #4– How long does this contingency last?
If COP paragraph 1.A. or 1.C. was checked, then this paragraph keeps the contingency (for closing escrow on buyers’ sale of their existing home) in place until the scheduled close of escrow on their new home– unless a different time is specified in paragraph 4 (ii). Importantly, during the time that the COP contingency is in place, the Buyers may cancel the purchase agreement for the new property if they cannot sell their existing home within the specified time, and Buyers can get their arnest money deposit back.
Paragraphs #5 and #6– How will the Buyer keep the Seller updated about progress on selling their current home?
These paragraphs require the Buyers to keep the Sellers updated on how the sale of their current home is going, including providing the Seller with information such as: revisions to the accepted contract, delays, contingency removals, and contract cancellation.
Paragraph #7– Pay attention to Seller’s Rights regarding Back-Up Offers
What are some of the Seller’s special rights in the COP? Importantly, Paragraph 7 allows the Seller to continue offering the property for sale for back-up offers. Per Paragraph 7.B., unless Paragraph 7.C.(3) is selected, if Seller accepts a back-up offer and provides the Buyer with a copy of it according to the time specified in 7.C .(1) or 7.C. (2), then Seller has the right to provide written notice to the Buyer to: 1) remove this COP contingency; 2) remove the loan contingency (if any); and 3) provide Seller with verification of sufficient funds to close escrow without the sale of Buyer’s current home. Per COP Paragraph 7.B., if the Buyer doesn’t timely comply with those three items, then the Seller can deliver a Notice to Buyer to Perform (NBP), wait the appropriate time, cancel the purchase agreement in writing, and move forward with the back-up offer.
It is very important to carefully review Paragraph 7.C.! By default, Paragraph 7.C. permits the Seller to exercise the back-up offer rights immediately. However, there also is the option in 7.C.(2) to delay the Seller’s right, and 7.C.(3) provides another option to deny these Seller rights.
Paragraph #9– How does a Seller cancel based on the COP contingency?
There are actually seven separate Seller cancellation rights for the Seller. Paragraph 9 spells them out one by one. The Seller may use any one of the seven to cancel. Six of the seven begin with a NBP form. You should note that the time periods for a Seller delivering a NBP are not based on a standard 17-day time frame, but instead are specific to the particular demand that the Seller is making.
Paragraphs #8, #10 and #11– These three paragraphs in the COP state that removal of the COP contingency shall be in writing, and these paragraphs also explain the steps for how the Buyer may cancel the purchase agreement. Paragraph 11 confirms the time period for performance of contractual obligations, and Buyer deposit requirements.
Finally, as a reminder, when using the COP, agents should review these terms with their clients to ensure they understand how the above contingency operates and applies to a Buyer who needs to sell an existing property.
Need more information about this topic? For more information or assistance completing the COP, members may call the C.A.R. Legal Hotline at (213) 739-8282, Monday to Friday, 9:00 a.m. to 6:00 p.m., or Saturday, 10 a.m. to 2 p.m. (for transactional questions).