Key Takeaways
- Schedule inspections early in the contingency period — leave at least 5 days as a buffer for delays and negotiations.
- Passive approval contingencies waive with inaction — agents must actively manage deadlines.
- Ambiguous contingency language creates disputes — define scope clearly to avoid mediation or litigation.
- Earnest money disputes often result in compromise when contract language is ambiguous.
Contract workflow challenges arise frequently in practice, testing agents' knowledge of contract mechanics and their ability to protect clients under pressure. These case studies examine common scenarios and their resolutions.
Case Study: Missed Inspection Deadline
A buyer's agent scheduled a home inspection for day 8 of a 10-day inspection period but the inspector could not complete the report until day 11 due to equipment issues. The agent submitted the inspection objection on day 11, one day after the contingency expired. The seller's agent responded that the inspection contingency had been waived due to the missed deadline and the buyer was now obligated to proceed without an inspection remedy.
The buyer's agent argued that the one-day delay was reasonable and caused by circumstances beyond the buyer's control. However, the contract used a "passive approval" inspection contingency — meaning silence (failure to object within the deadline) constituted approval. The buyer had effectively waived the inspection contingency by missing the deadline. The buyer chose to proceed with the transaction rather than risk forfeiting the $10,000 earnest money deposit. This case illustrates why agents should schedule inspections early in the contingency period, leaving a buffer for delays.
Case Study: Earnest Money Dispute
A buyer submitted a purchase offer with a $15,000 earnest money deposit. During the due diligence period, the buyer discovered that the property was in a flood zone — a fact not disclosed by the seller. The buyer attempted to cancel the contract under the inspection contingency, but the seller argued that flood zone status was not covered by the inspection contingency (which specified "physical condition of the property") and refused to release the earnest money.
The dispute went to mediation as required by the contract. The mediator found that the buyer had a reasonable basis for cancellation but that the inspection contingency language was ambiguous regarding flood zone coverage. The parties ultimately agreed to split the earnest money — $7,500 to each party. The case illustrates the importance of clearly defining the scope of inspection contingencies. A well-drafted contingency would have either explicitly included or excluded environmental and regulatory conditions.
Key Takeaways
- ✓Schedule inspections early in the contingency period — leave at least 5 days as a buffer for delays and negotiations.
- ✓Passive approval contingencies waive with inaction — agents must actively manage deadlines.
- ✓Ambiguous contingency language creates disputes — define scope clearly to avoid mediation or litigation.
- ✓Earnest money disputes often result in compromise when contract language is ambiguous.
Sources
- NAR Legal Affairs Case Studies(2025-03-01)
- State Real Estate Commission Complaint Databases(2025-03-01)
Common Mistakes to Avoid
Failing to communicate deadline changes to all parties promptly after an amendment is executed.
Consequence: One party may operate under the original deadlines while the other operates under amended deadlines, causing confusion and potential default.
Correction: Immediately communicate all deadline changes to every party (clients, agents, lenders, title companies) when an amendment is executed, and update all tracking systems.
Releasing earnest money without written authorization from all parties.
Consequence: The escrow agent and the party who authorized the release may face liability if the other party had a valid claim to the funds.
Correction: Never release earnest money without written authorization from all parties to the contract, or a court order. When in doubt, consult with the escrow agent and legal counsel.
Test Your Knowledge
1.What is the most common cause of contract workflow failures?
2.What typically happens in an earnest money dispute when both parties claim the deposit?
3.What is the best way to prevent earnest money disputes?