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California Residential Real Estate Purchase Agreement: Part 12

by Bruce G. Barnes 2. April 2014 16:13

Whether you are a seller or a buyer chances are very great that your agents will use California Association of Realtor’s (C.A.R.) From “California Residential Purchase Agreement and Joint Escrow Instructions (RPA-CA). It would be wise that long before you either make an offer or receive an offer, to look over the purchase agreement. It can give the buyer or the seller an opportunity to be able to calmly look over this contract instead of seeing it for the first time during a period of some tension. So when it comes time for a buyer to make an offer or a seller to receive an offer, they will much more relaxed signing it. Hopefully many if not most of their questions will have been already answered. The following is a snapshot of some of the paragraphs in the contract and a brief explanation.

Paragraph 15 Repairs: If the seller has agreed to complete repairs at their expense, those repairs must conform to applicable law. That means that if they hire an outside person to perform the work and the cost is over $500, that person must be a licensed contractor. If the work requires permits, those permits must be pulled. The work must be performed in a good and skillful manor. In other words it can’t be sloppy. The seller is required to provide receipts to the buyer on the cost of the repairs done by others; prepare a statement indicating what repairs were completed and the date they were performed. The buyer will have an opportunity to inspect those repairs when they do their “verification of condition” at least 5 days before the close of escrow. A much better solution for agreed repairs is for the seller to give the buyer a credit for those repairs. That way the buyer can do the repairs themselves and insure that they are done correctly.

Paragraph 22 Definitions: While many seem to pass this paragraph up-looks boring-it really is important information. Most definitions are self-explanatory, but others need more explanation. Paragraph 22a-acceptance is one of those. When an offer is made and on page 8 of the purchase agreement paragraph 29 the agent representing the buyer will insert a date that the offer will expired unless the buyer (or usually the buyer’s agent) receives the submitted offer signed by the seller in accordance with the terms of the offer by that date. It is not mandatory that the buyer’s agent initial “confirmation of acceptance”, but it is good practice to do so. So a contract is formed when either the buyer or the buyer’s agent receives the entire offer back (or any other forms tied to the offer) signed by the seller. Some agents to save time, will only send back page 8 signed by the seller. The entire contract must be sent back.

Paragraph 26 Dispute Resolutions: The first step in any dispute between a seller and buyer is Mediation. When a seller and buyer sign the purchase agreement and in accordance with paragraph 26(a) they agree to first mediate any dispute. Mediation is non-binding. There are some exclusions to mediation found in Paragraph 26 (c). If the dispute is not settled by mediation then arbitration would apply, but for arbitration to apply both the seller and the buyer must initial paragraph 26(b). The arbitrator’s decision is binding on both parties. Parties to the arbitration may be represented by attorneys. If either a buyer or seller does not know if they should initial agreeing to arbitration, they need to seek the advice of an attorney. Agents and brokers cannot give legal advice. There can be too many “what ifs”. What if I do this or don’t do this, how does that effect my legal position?

California Residential Real Estate Purchase Agreement: Part 11

by Bruce G. Barnes 2. April 2014 16:06

Whether you are a seller or a buyer chances are very great that your agents will use California Association of Realtor’s (C.A.R.) From “California Residential Purchase Agreement and Joint Escrow Instructions (RPA-CA). It would be wise that long before you either make an offer or receive an offer, to look over the purchase agreement. It can give the buyer or the seller an opportunity to be able to calmly look over this contract instead of seeing it for the first time during a period of some tension. So when it comes time for a buyer to make an offer or a seller to receive an offer, they will much more relaxed signing it. Hopefully many if not most of their questions will have been already answered. The following is a snapshot of some of the paragraphs in the contract and a brief explanation.

Paragraph 10 Buyer’s Investigations: One important point in paragraph 10(b) among other things is that the buyer is required to provide to the seller, at no cost, complete copies of all investigation reports obtained by buyer, which obligation shall survive the termination of this agreement. There are times a seller will instruct the listing agent not to give them any of the buyer investigation reports. The seller’s thought is that if the buyer cancels the agreement they will now be in possession of these reports and must disclose those to future buyers-which they do. So those reports will come directly from the buyer’s agent to the seller’s agent and the seller’s agent must give those reports to the seller. Suppose the seller refuses to accept them and the listing agent continues as the seller’s agent to sell the property. A new buyer enters into a contract with the seller. True the seller does not have those reports, but the listing agent does and they are now in possession of material facts that the new buyer should have. In fact the listing agent is legally obligated to disclose those facts.

Paragraph 11 Seller Disclosures; Addenda; Advisories; Other Terms: One item to note is paragraph 11(a) is the Seller Property Questionnaire. Buyers you want as much information about the property from the seller as you can get. The Seller Property questionnaire is not mandatory- it is not required by law. Make sure the box is check so it is in the contract requiring the seller to provide it. The seller is also required to provide the Transfer Disclosure Statement, but that form is required by law.

Paragraph 14; Removal of Contingencies; Seller Right To Cancel: Paragraph 14(c) addresses the seller’s right to cancel. At some point the buyer is required to remove all of their contingencies. If they do not the seller has the right to provide to the buyer a “notice to perform”. If the buyer does not perform to remove contingencies, the seller has the right to cancel. Sellers should be very careful about do this. First of all if the market is slow and the seller does not have another buyer waiting in the wings it just might be foolish to get rid of this buyer and go back on the market. The buyer may have a genuine reason for not removing the contingencies. The seller’s agent and the buyer’s agent should be talking at this point and it just may be that the seller is experiencing problems with their lender- they’re slow. The buyer can’t remove the loan and the appraisal contingency. In fact it would be foolish for them to do so at this point. The buyer’s agent has also disclosed to the listing agent the buyer really wants the escrow to close. So for the seller to be adamant, they just might be doing a big disservice to themselves. A better solution is a compromise. Give the buyer an extension on removal of the loan and appraisal contingency and have the buyer remove all other contingencies. If the seller just gives the buyer a “notice to perform” and it is either or, then the buyer can just walk away. That would be a shame because the seller obviously wants to close and in this example the buyer does too. So you have a seller and buyer with the same goal- keep it that way.

California Residential Purchase Agreement:Part 9

by Bruce G. Barnes 2. April 2014 15:44

Whether you are a seller or a buyer chances are very great that your agents will use California Association of Realtor’s (C.A.R.) From “California Residential Purchase Agreement and Joint Escrow Instructions (RPA-CA).  It would be wise that long before you either make an offer or receive an offer, to look over the purchase agreement.  It can give the buyer or the seller an opportunity to be able to calmly look over this contract instead of seeing it for the first time during a period of some tension.  So when it comes time for a buyer to make an offer or a seller to receive an offer, they will much more relaxed signing it.  Hopefully many if not most of their questions will have been already answered. The following is a snapshot of some of the paragraphs in the contract and a brief explanation.

Paragraph 1(d) Close of escrow: This paragraph states that escrow will close on a specified date or a number of “days after” acceptance. It is usually better to choose a specified date. However in a short sale the buyer may state that they will close in a certain number of days after the lender has agreed to the short sale. The definition of “days after” is found in paragraph 22 of the purchase agreement. In counting the “days after”, the day of occurrence (the day of acceptance) is not counted and ends on the final day at 11:59pm.

Paragraph 1(c) Confirmation of agency relationships: When agents first start working with either a seller or a buyer, they first provide them with a “Disclosure of Agency Relationships”. It is required by law and it is to simply provide information to their clients of the different types of agency relationships. Paragraph 1(c) now “confirms” what that relationship is. If for example the buyer has an agent and the seller has an agent, the buyer’s agent will show that they represent the buyer “exclusively”. It could be though there is only one agent and that agent is going to represent both the seller and the buyer. That would be called “dual agency”.

Paragraph 3(a) Initial deposit: This paragraph states the amount of the buyer’s deposit, the time period the deposit will be delivered to escrow and who will deliver it. If the buyer will deliver the deposit themselves to escrow, then they do not have to provide the deposit to their agent. Most buyers state that the deposit has been given to their agent and their agent is responsible for delivery to escrow in the time period agreed too (usually 3 days after acceptance). Sellers should make sure the amount of the deposit is sufficient. For example if the offer for the home is $1,000,000 and the deposit $1,000.00 that is an insufficient deposit.  For home of this value one should expect a deposit more like $15,000-$20,000.  The seller should make a counter offer raising it. 

Paragraph 3(c) loan terms: A common mistake of some agents and buyers is to not to properly complete this section. Buyers should make sure this section is completed and so should sellers.  Many times this section is left blank or the agent may put terms for the maximum interest rate as the “prevailing rate”-this can be a big mistake. This section is a protection for the buyer and the seller.  An example would be that if 5% is entered as the maximum interest rate the buyer will pay and if the bank only approves them at a rate of 6%, then the buyer has the right to cancel the contract. On the other hand if nothing is entered in this section and the bank approves the loan at a rate of 6%, but buyer really can’t pay over 5% and then tries to cancel, the seller would probably have a good case stating that the buyer has acted in bad faith and the buyer does not have the right to cancel. The offer was contingent on the buyer being able to get a loan and they in fact can get a loan. As for prevailing rate being entered, what does prevailing rate mean and who determines what the prevailing rate is? Buyers and sellers be absolutely sure this section is filled out and don’t let anyone tell you it is not necessary.

California Residential Real Estate Listing Agreement: Part 1

by Bruce G. Barnes 19. March 2014 14:50

California Listing agreement (Exclusive Authorization and Right to Sell)(C.A.R. Form RLA)

This concerns only the residential listing agreement and exclusive authorization to sell. If you are a seller and reside in the State of California and your agent and broker are a members of the California Association of Realtors (C.A.R.) it is highly likely your agent will use C.A.R form RLA. Sellers need to pay close attention to any contract they sign in a real estate transaction, and the listing agreement is a great place to start. The “exclusive authorization to sell” means something and it’s important. What it means is that if the listing broker, cooperating broker (buyer’s broker), the seller or any other person procures a ready, willing and able buyer whose offer to purchase the property on any price and terms accepted by the seller, a commission is owed to the listing broker. This listing a different from an exclusive listing and open listing. Also the listing agreement must have an ending date. It is unlawful do not have an ending date, so make sure there is one. It is well advised that sellers do not agree to listing contracts exceeding 90 days. There are a couple of reasons for this. How do you the seller know that the relationship between you and the agent is not going to turn sour-it is not common-but it can happen. Many sellers think that can just “fire” their agent and for that matter there be some agents that think they can do the same to their clients. Both of you signed a bilateral contract and that means that in order for this contract to be cancelled there has to be a mutual agreement between the seller and the broker to do so. So a seller can sign a 6 month listing agreement and many cases be stuck. Some sellers resort to being uncooperative and hoping the listing agent will walk away; however refusing to show the property etc. can be big problems for the seller. In paragraph 4(3) of C.A.R. form RLA it states that the listing broker is owned a commission “if without the broker’s prior written consent the property is withdrawn, from sale, conveyed, leased, rented, otherwise transferred, or made unmarketable by a voluntary act of seller during the listing period or any extension. So the intent of the seller to “drive” off the broker could backfire. The listing agent will make the case that the seller owes the entire commission. It is highly advisable that both the listing agent and the seller come to some kind of agreement. It is definitely in their best interest. This post is not intended as legal advice. The intention is for sellers to really pay attention to listing contract details. Most residential transactions close on time and without too many problems, but problems can happen and unfortunately sellers are sometimes left thinking “I should have paid closer attention to that contract”.

California Residential Real Estate Purchase Agreement:Part 7

by Bruce G. Barnes 17. September 2013 17:47

Your home is for sale and now you have received an offer. In most cases almost all California residential real Estate brokers and agents use C.A.R. (California Association real estate forms) in which case the offer will be written on C.A.R form (RPA-CA), California Residential Purchase Agreement. If you are represented by a California licensed Real Estate agent or broker, most likely they will receive the offer and they will then notify you with the details. Have your agent scan the document and email it to you. Then you and your agent can go over it line by line. This post however is not about the entirety of the offer, but how you can determine with some confidence that you are dealing with a “strong” buyer. Many sellers get too excited about the price offered and have a tendency to gloss over some very important points. First what is the buyer’s deposit amount paragraph 3(a)? That amount will differ depending on the sales California Residential Purchase Agreement 7price. For example if the sales price is around $600,000, then a $10,000 deposit is respectable. If the purchase price is $2,000,000 then maybe 20,000 or $30,000 is appropriate. Don’t forget the buyer could lose the deposit under certain circumstances if they do not go through with the sale. So the more the deposit the stronger your buyer is because they are putting that deposit at risk. If you receive a $1,000 deposit, then that’s a red flag. You can counter a larger amount, but that tells you a lot about the buyer right away. They are not solid or they are just ignorant. Second in paragraph 3(c) 1 the buyers will state the amount of the 1st loan and the type of loan, maximum interest rate and the maximum points paid. Take the interest rate for example. If the going fixed rate is 4.5% and they have 2% listed, then that is unrealistic. If this were not to be caught they can use this interest rate of 2% as an excuse for not going through with the transaction because they could not get a lender to give them a loan at that rate (who can). So you want to counter back to the buyer a rate that is a realistic rate. This paragraph should not be left blank.

California Residential Real Estate Purchase Agreement:Part 8

by Bruce G. Barnes 17. September 2013 17:45

The continuation of important items to pay close attention too when receiving an offer to purchase your home. The Third item of importance when receiving an offer to purchase (C.A.R. form RPA-CA) is in paragraph 3(G). This paragraph concerns the verification of the “down payment and closing cost”. In other words you want to know the source of their funds that are necessary to close the transaction. The buyer has a choice of providing that information to you within 7 days after acceptance or they can state that verification attached with the offer. If it is attached to the offer that is another indication you might have a “strong” buyer. But you need to pay very close attention to what is being provided. Documents such as copies of CDs, money market account, savings account or brokerage are generally good sources. What you want are liquid assets that can be turned into cash very quickly. If it can’t be it is not a good source. The fourth item of importance is paragraph 3(H) 1. This paragraph concerns Loan application. If the buyer is applying for a loan they have 7 days after acceptance to provide a letter from a lender they are pre-Real estate saleapproved or prequalified. Being pre-approved is ideal. What that means is that the lender has actually received and reviewed the buyer’s financial documents. Pre-qualified is nothing more than the buyer stating verbally to their lender their financial position. The identity of the lender is very important. If it is from a Bank such as Bank of America, Wells Fargo etc. or any direct lender, the buyer is directly in contact with them. So you know exactly where the loan is coming from. If the letter is from a loan broker, you really don’t know who their lender will be and it is unlikely the loan broker will state who it is. There are many reputable loan brokers that can provide a valuable service to buyers seeking loans, but you as a seller need to be comfortable with the buyers financing. Your agent should contact the loan broker to find out exactly where the buyer stands with financing and get as much information as possible. It really is up to the buyer and their loan broker to do everything they can to convince you of their credibility. The obvious goal of a seller after accepting an offer to purchase their home is to close escrow. If a seller does not pay close attention to every detail of the offer, they just may find that they have just spent 30 or 45 days in escrow only to see it fall out of escrow. In paragraph 3(J) a box is checked if it is an all cash offer. The buyer has 7 days after acceptance to provide proof of funds or the proof can be attached to the offer. Strong buyers will attach it to the offer. Once the seller has to be convinced the documents provide as proof are believable. If you have any doubts ask questions.

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