California Contingencies Explained: Protecting Your Earnest Money in the San Fernando Valley

By Jason Franklin | August 3, 2026

When buyers in Woodland Hills ask me about contingencies, they usually fall into one of two camps. The first group asks before they've made an offer — cautious, doing their homework. The second group asks at 10 p.m. on a Tuesday because their inspection deadline is tomorrow and their agent is hard to reach.

This post is for both groups. But especially the second one.

A contingency is a condition in your purchase contract that must be satisfied before the sale is final. If the condition isn't met — or if you discover something during your contingency window that changes your mind — you can cancel the contract and get your earnest money back.

In the San Fernando Valley, earnest money is typically 3% of the purchase price. On a $1.2 million home in Woodland Hills, that's $36,000 sitting in escrow. On a $2 million home, it's $60,000. That's not play money — it's real risk.

The contingencies in your purchase contract are the legal levers that protect it.

Why California Is Different: Active Contingency Removal

Most states handle contingencies passively — when the deadline passes, the contingency automatically expires. California does it differently.

California uses active contingency removal. That means each contingency remains active until you sign a written Contingency Removal (CR) form specifically releasing it. If the inspection deadline passes without a signed removal, the contingency doesn't simply expire. Instead, the seller can issue a Notice to Buyer to Perform (NBP), which typically gives you 2 days to either remove the contingency or cancel the contract.

This is one of the most misunderstood mechanics in California real estate, especially for buyers relocating from out of state. Understanding it protects you. Missing it can cost you.

The Three Contingencies You Need to Understand

The current C.A.R. Residential Purchase Agreement (RPA) — the standard contract used in most California transactions — includes three main contingencies. Each has a default deadline measured from the date the seller accepts your offer.

1. Inspection Contingency — 17 Days

The inspection contingency gives you 17 days to conduct physical inspections of the property and review the results. This covers your general home inspection, termite inspection, roof inspection, sewer lateral inspection, and any specialty inspections you want.

You'll also receive the seller's disclosures during this window — the Transfer Disclosure Statement (TDS), the Seller Property Questionnaire (SPQ), and the Natural Hazard Disclosure (NHD). If you want to understand exactly what disclosures California sellers are required to provide, and what they reveal, I wrote about that in detail here: California Seller Disclosure Requirements: What Woodland Hills Homeowners Must Tell Buyers in 2026.

If inspections reveal material issues, you have three paths: negotiate repairs or a credit, request a price reduction, or cancel and recover your earnest money. Once you sign a Contingency Removal form releasing the inspection contingency, those options are gone.

On older San Fernando Valley homes — and a significant portion of West Hills, Woodland Hills, and Tarzana housing stock dates to the 1950s through 1970s — a thorough inspection is especially important. Electrical panels, plumbing systems, roofing, and HVAC are all areas where deferred maintenance shows up. Don't rush this window.

2. Appraisal Contingency — 17 Days

The appraisal contingency is separate from the loan contingency in the current RPA — a change many buyers don't realize happened.

Your lender orders an appraisal to confirm the home's value supports the loan amount. If the appraisal comes in below your agreed purchase price, you face an "appraisal gap" — the lender will only finance based on the lower value.

While this contingency is active, you have three options: cover the gap yourself in cash, ask the seller to reduce the price, or cancel the contract and get your deposit back. After you remove it in writing, the seller is not legally required to reduce the price — and any future buyer with a mortgage will likely face the same appraisal issue, which is why sellers usually prefer to negotiate rather than start over.

3. Loan Contingency — 21 Days

The loan contingency protects you if your financing falls through for any reason — income verification issues, credit changes, debt-to-income ratio problems, or lender underwriting decisions. As long as this contingency is active, a loan denial gives you the right to cancel and recover your deposit.

Most loan issues surface within the first 21 days, but if anything changes in your financial picture between offer acceptance and close — a new credit card, a job change, a large purchase — let your lender know immediately. Changes that affect your debt-to-income ratio or credit profile can affect your loan approval even after the contingency period.

What Happens When a Deadline Passes Without Removal

Here's where buyers in competitive markets get into trouble.

When a contingency deadline arrives and you haven't signed a removal, the seller can serve a Notice to Buyer to Perform. This formal written demand gives you 2 days to remove the contingency or cancel the contract. If you do neither, the seller can cancel the contract and may be entitled to keep your earnest money under the liquidated damages clause.

The 2-day window sounds short because it is. If you're mid-inspection or waiting on lender documents, communicate proactively with your agent. Don't wait for a notice to force the conversation.

The Competitive Market Pressure to Shorten or Waive

In multiple-offer situations across Woodland Hills — and well-priced homes in the 91364 and 91367 ZIP codes still generate real competition — sellers sometimes push for shortened contingency periods or contingency waivers.

Shortening contingency periods is reasonable in some situations. Moving from 17 to 10 days for inspection is workable if you schedule inspections immediately after acceptance. But waiving contingencies entirely — especially the inspection contingency — is a much higher-risk move on homes with unknowns.

If a seller is listing a property as-is, understanding what that means for your inspection rights matters a lot. The short version: as-is means the seller won't make repairs, but it doesn't waive your right to inspect or cancel based on what you find — as long as your contingency is still active. I covered the as-is decision in detail from the seller's side here: Fix Up or Sell As-Is in Woodland Hills? Here's How to Decide.

The decision to shorten or waive contingencies is yours — but it should be an informed one, not a default one. I've seen buyers waive inspections to win a home, and I've seen the same buyers face $40,000 or more in deferred-maintenance surprises within six months of closing.

Your Earnest Money and the Liquidated Damages Clause

Your offer almost certainly included a liquidated damages clause. In California residential transactions, this sets your earnest money deposit as the agreed amount of damages if you default on the contract — and it's capped at 3% of the purchase price.

Here's what this means practically:

• Cancel while a contingency is active → You get your deposit back (if the cancellation is for a covered reason)
• Cancel after removing all contingencies without a valid contractual reason → The seller is entitled to keep your deposit
• Cancel due to seller default or breach → You may be entitled to your deposit back and potentially additional remedies

The lines can blur in disputed cancellations, and situations sometimes call for a real estate attorney. But the core principle holds: your contingencies are your protection. Once you release them in writing, you're committed.

A Few Practical Notes on Timelines

Contingency deadlines run from the date of seller acceptance, not the date your offer was written. If your offer was written Saturday and the seller accepted Monday, your clock starts Monday.

Your agent should send you a contingency timeline at the start of escrow — a simple document showing each deadline date. If you don't have one, ask for it. Knowing your exact dates is non-negotiable. Missing a deadline in California doesn't automatically kill your contingency, but it puts you in reactive mode — and in a live transaction, that's not where you want to be.

Every situation in a transaction is a little different, and your specific contingency windows, timeline, and exposure depend on your contract terms, the property's condition, and how the negotiation goes. That's exactly the kind of thing I walk my clients through before and during escrow — so nothing comes as a surprise.

Frequently Asked Questions

How long do I have for inspections in California?

The standard inspection contingency period is 17 days from the date of seller acceptance under the C.A.R. Residential Purchase Agreement, though this is negotiable. In competitive markets, sellers sometimes request a shorter window — 10–14 days is common in the San Fernando Valley.

What is active contingency removal in California?

Active contingency removal means each contingency stays in place until the buyer signs a written Contingency Removal (CR) form. Unlike most states where contingencies expire automatically at the deadline, California contingencies remain active until the buyer releases them in writing. Missing a deadline doesn't automatically end the contingency — it allows the seller to issue a Notice to Buyer to Perform, typically giving you 2 days to remove or cancel.

Can I back out of buying a house after the inspection in California?

Yes — if the inspection contingency is still active and you choose to cancel based on inspection findings, you can cancel the contract and recover your earnest money deposit. Once you have signed a Contingency Removal form releasing the inspection contingency, you lose this right. Don't sign anything before you've reviewed all inspection reports and made a clear decision.

What happens if the appraisal comes in low in California?

If the appraisal contingency is active, you have three options: pay the appraisal gap in cash, renegotiate the price with the seller, or cancel the contract and recover your deposit. In the current C.A.R. RPA, the appraisal contingency is a separate 17-day contingency — distinct from the loan contingency — which many buyers don't realize.

What happens to my earnest money if I back out after removing contingencies?

If you cancel the contract after removing all contingencies without a valid contractual reason, the seller is generally entitled to keep your earnest money as liquidated damages under the California purchase agreement. In the San Fernando Valley's price range, that's typically $27,000–$60,000 at risk. Consult your agent before signing any contingency removal form if you have unresolved concerns.

Contingencies are your primary protection in a California home purchase — and the rules here are genuinely different from most states. Understanding how active removal works, when your deadlines fall, and what you can and can't do after removing a contingency is the difference between a protected buyer and a vulnerable one.

If you're in escrow right now and want to walk through your contingency timeline, or if you're preparing to make an offer and want to understand what you're signing, I'm happy to talk through your situation. Reach out anytime at jasonfranklinre.com.