Paragraph 16, Final Verification of Condition (CAR form RPA-CA). This paragraph seems to get lost as far as most buyers are concerned. But it is very important to a buyer. The buyer wants to make certain that the property is in the same condition as of the date of acceptance of the purchase agreement. If the seller has agreed to make repairs at the request of the buyer, those repairs also need to be confirmed. This paragraph gives the buyer usually five days to make a final inspection of the property before the close of escrow. In paragraph 9, Condition of Property (CAR Form RPA-CA) of the purchase agreement, unless otherwise agreed, the property is being sold in its present physical (as-is) condition subject to a physical inspection by the buyer and any agreed to repairs by the seller. Paragraph 15 Repairs (CAR Form RPA-CA) states that any repairs by the seller will be completed prior to the final verification of condition. It also goes on the state that the agreed to repairs may be made by the seller or through others. But any repairs must comply with applicable law. In other words if the repairs require a permit, then a permit must be obtained. Repairs are also to be completed in a good, skillful manner. It can’t be sloppy. The seller also has to supply to the buyer receipts for repairs provided by others and if the seller makes the repairs then receipts for the costs must be provided. So if you are a buyer it just might be advisable that instead of the seller having responsibility for any repairs, you might have the seller issue a credit, to you, through escrow for agreed to repair costs. That way the buyer does not have to worry if the seller made the repairs or made the repairs in the correct way. The buyer can have those repairs completed after escrow closes and can have complete control to make sure they are completely correctly and that should give every buyer a little more peace of mind. It may seem easier to have the seller make those repairs, but you may be sorry you agreed to it.

The statement above is not intended as legal advice. Buyers and Sellers should always consult with real estate attorneys if they have questions about the contents a real estate contract.

California Real Estate Forms (PDF)

Paragraph H (3) California Residential Purchase Agreement and Joint Escrow Instructions (CAR form (RPA-CA). This paragraph concerns the removal of the loan contingency by the buyer. The buyer can specify how many days after acceptance that it will be when the offer is made to the seller. It can be for a certain amount of days such as 17 or the buyer can specify that the loan contingency will remain in effect until the loan funds. This mean the buyer will never remove all contingencies in the transaction. There is always a difference of opinion between the seller and the buyer on this subject. From the seller’s stand point, they want to know at a specified date before the close of escrow that the loan contingency has been removed. By the buyer removing the loan contingency before the close of escrow, it gives the seller more confidence that the sale will close and that they have not wasted a lot of time. Whether the loan contingency is removed or it remains in effect until it funds depends on how much the seller wants to sell and how badly the buyer wants the property. But the buyer should be will aware that the lenders today are, shall we say, a lot more fickle than before. Before loan documents are prepared there is always a second review by the lender of loan documents and what may be missing. The person making the second review may also have a different view of the buyer’s abilities to support the loan. So a buyer has to be very careful if they release a loan contingency. They need to have a lot of confidence that their lender will come through. If the buyer does release the loan contingency along with all of the other contingencies and the lender creates a problem at the end, then the buyer is subject to loosing their deposit per paragraph 25 of the purchase agreement if both seller and buyer initialed that paragraph.

The statement above is not intended as legal advice. Buyers and Sellers should always consult with real estate attorneys if they have questions about the contents a real estate contract.

California Real Estate Forms (PDF)

Paragraph 3(c) 1 & 2 California Residential Purchase Agreement and Joint Escrow Instructions (CAR form) RPA-CA). This is one paragraph sellers seem to miss all of the time and they shouldn’t. First of all the loan(s) that the buyer is proposing to complete the sale is a contingency of the purchase agreement (unless they are proposing some other type of financing such as all cash). 3(c) 1 is for a first loan and 3(c) 2 is for a second loan, if necessary. The seller wants to make sure that both of these paragraphs are fully completed. If they are not then the seller should make a counter offer regarding the contents of each paragraph. For example if the buyer is going to apply for a conventional loan, the paragraph should specify if the loan is a fixed rate or an adjustable rate. It should also specify the maximum interest rates for each. It should also state the maximum amount of points the buyer will pay. So if the buyer inserts a maximum fixed rate of 2% in today’s market, then most sellers would probably consider that unrealistic or they should. All the seller has to do is make a counter offer at something like 4.75% maximum fixed rate. If the seller were to miss the 2%, then that gives a buyer an easy out if they so choose. The buyer has until a certain date to remove the loan contingency. The seller could sit there for 17, 20 days (or the amount of days the buyer and seller agree to) and then the buyer tells the seller; hey we can’t find a 2% loan. If the seller didn’t know that a 2% loan was unrealistic, then at least their agent or broker should have known. In the end all the sellers did was waste a lot of time, entered escrow and took the home off the market. Now they have to cancel escrow and probably return the buyer’s entire deposit. Sellers don’t miss this paragraph 3(c) 1&2.

The statement above is not intended as legal advice. Buyers and Sellers should always consult with real estate attorneys if they have questions about the contents a real estate contract.

California Real Estate Forms (PDF)

Paragraph 6(c) of the California Residential Purchase Agreement is a paragraph all buyers should pay close attention too. This paragraph concerns withholding taxes for the seller. The seller is required to present to the buyer one of three forms.

1. A Buyer’s Affidavit (CAR form AB-11) which states that the purchase price of the residence the buyer is acquiring does not exceed $300,000 and that the buyer will occupy the property as his or her residence. By the buyer making those statements he or she is establishing an exemption from withholding a portion of the sales price of the property. Buyers should be aware that California has a different purchase price for the seller to be exempt and that is $100,000 or less. So if the purchase price is between $100,000 and $300,000, then the seller is exempt for Federal tax withholding and NOT exempt for California withholding.
2. Seller’s Affidavit of Non-foreign Status and/or California Withholding Exemption (CAR Form AS). This form will put the buyer on notice that the seller is either stating they are exempt or nonexempt from withholding taxes. This form also requires that the seller(s) provide their tax ID number or social security number.
3. Qualified Substitute Declaration of Possession of Transferor’s Affidavit of Non-foreign Status (CAR Form QS). The qualified substitute may be an escrow company, title company, or attorney responsible for closing the subject transaction or the transferee’s broker (buyer’s broker). Usually it is an escrow company. The main reason the qualified substitute was created was because many sellers did not like the idea that by providing #2 above, the buyers would have the seller’s tax IDs or social security numbers.

If none of these forms are provided to the buyer then the buyer must request that escrow withhold taxes for both Federal and California. The withholding for Federal is 10% and for California is 3 1/3%. Why is all of this important to buyers? If the buyer does not take precaution to make sure the seller is exempt from withholding taxes, the buyer may very well be liable to both Federal and California for the taxes the seller may have owed.

The statements above in no way are to be considered either legal advice or tax advice. Buyers are encouraged to seek professional guidance from their attorney or tax advisor.

Paragraph C Seller right to cancel:

1. The buyer has 17 days (or whatever amount of days is agreed too, to remove in writing the applicable contingency (contingencies). If the buyer does not do so, then the seller must provide to the buyer a notice to perform (remove contingency) and then the seller may cancel the agreement and authorize the return of the buyer’s deposit if the buyer has not performed.
2. The seller also had the right to cancel, after providing the buyer a notice to perform, if the buyer does not fulfill buyer contract obligations (e.g. buyer fails to deposit funds in escrow, buyer fails to provide verification of down payment and closing costs, buyer fails to return statutory disclosures). The seller shall authorize the return of buyer’s deposit.

Paragraph D Effect of Buyer’s removal of contingencies:

Once the buyer has removed all contingencies, in essence the buyer is saying I am ready to continue with the transaction and desire to close this escrow. If the buyer’s lender after that point decides not to go through with the loan, then the buyer really does not have any recourse to cancel the transaction. If the buyer just gets “cold feet”, again the buyer does not have recourse to cancel the transaction. If the seller and buyer have both initialed paragraph 25 Liquidated Damages, then the buyer’s deposit is subject to being claimed by the seller. So the buyer should be very confident about going through with the sale once the buyer releases all contingencies.

The above paragraphs are in reference to C.A.R. from PPA-CA.

Buyer and sellers should if necessary consult with a real estate Attorney before signing any real estate contract. Broker and agents are usually not attorneys and by law cannot give legal advice.

California Real Estate Forms (PDF)