California Residential Purchase Agreement Simplified

Welcome to a simplified overview of the California Residential Purchase Agreement. In this introduction, we'll highlight some key points, making them straightforward and easy to grasp. Think of the contract as a roadmap; comprehending it thoroughly, along with your obligations, can streamline the entire escrow process.

Real Estate Agency Disclosure

When dealing with a real estate agent for buying or selling property, it's essential to establish a relationship and be clear about it. There are different types of agents and agencies. 

Seller’s Agent- Listing Agent

As an agent under a listing agreement with the seller, the agent's primary role is to act as the seller's representative. This role, often called the seller’s agent or listing agent, involves specific duties towards the seller. A listing agent exclusively serves the seller's interests and is bound by honesty, loyalty, and diligence. Their role encompasses advising the seller, accurately assessing the property's value, effectively marketing it, and providing unwavering representation throughout the transaction process.

1. **Fiduciary Duty:** The agent owes the seller a duty of utmost integrity, honesty, and loyalty. This means always acting in the best interest of the seller.

2. **Skill and Care:** The agent must exercise reasonable skills and care in performing their duties. This includes handling all aspects of the sale process competently and diligently.

3. **Honesty and Fair Dealings:** There is a duty of honest and fair dealings and good faith in all transactions with the seller.

4. **Duty to Disclose:** The agent must disclose all facts known to them that materially affect the value or desirability of the property. This disclosure should be made if these facts are known or should be known through diligent attention and observation.

5. **Confidentiality:** An agent is not obligated to reveal confidential information obtained from one party to the other, provided it does not involve the affirmative duties mentioned above.

This arrangement ensures the agent operates in the seller’s best interests, maintaining ethical standards and professional integrity throughout the transaction.

Buyer’s Agent

In a real estate transaction, an agent can, with the buyer's consent, act exclusively as the agent for the buyer, also known as a selling agent. A buyer's agent exclusively represents the buyer's interests, maintaining transparency throughout the real estate transaction. They provide valuable guidance by analyzing comparable sold properties, enabling them to recommend the most competitive offer considering current market conditions. Furthermore, they actively negotiate on behalf of the buyer and offer ongoing support and advice throughout the transaction. In this scenario, the agent is not representing the seller, even if they receive compensation, in full or in part, from the seller. As a buyer's agent, their obligations include:

1. **Diligent Exercise of Skill and Care:** The agent must competently and diligently perform their duties, applying reasonable skill and care throughout the process.

2. **Honesty and Fair Dealings:** There is an obligation for honesty, fair dealings, and good faith in all interactions with the buyer.

3. **Duty to Disclose:** The agent is required to disclose all known facts that materially affect the value or desirability of the property, especially those not known or easily observable by the buyer.

4. **Confidentiality:** The agent must not reveal any confidential information obtained from either party unless it relates to the affirmative duties outlined above.

Dual Agent

In cases where an agent represents both the buyer and the seller, known as a dual agency, they must maintain a fiduciary duty of utmost care, integrity, honesty, and loyalty in dealings with both parties. This dual representation is only legal and is done with the knowledge and consent of both the seller and the buyer.

While agents have specific responsibilities, safeguarding your interests is equally crucial. Be sure to thoroughly review all agreements and seek professional advice, mainly when dealing with legal or tax-related matters. Your proactive approach makes sure you're well-informed and protected throughout your transactions.

Representing More Than One Buyer or Seller

Multiple Buyers: A buyer's broker might work with many buyers simultaneously. These buyers could be interested in the same properties. The broker won’t restrict any buyer from making offers on any property, even if they represent other interested buyers.

Multiple Sellers: A seller’s broker may have listings for many properties, including your neighbors or next-door property. The broker will market all properties to all potential buyers, regardless of other listings they might have.

Dual Agency: Sometimes, a broker might represent the seller and the buyer in the same deal. This is known as dual agency. Both parties must agree to this arrangement. The dual agent must keep certain information confidential, like the seller’s lowest acceptable price or the buyer’s highest offer. However, they must disclose facts that affect the property's value.

Offers and Confidentiality: Offers made by buyers aren’t always confidential. The seller or agent might disclose an offer's existence, terms, or conditions to others. Disclosed information can depend on market conditions and the seller's instructions. Buyers should know that your offer could be auctioned off to attract more buyers. 

Buyers and sellers should understand that a broker can represent multiple clients, even in the same transaction. It's essential to read and understand everything you’re signing and proceed cautiously. Knowing what you agree to is crucial in navigating the real estate market.

Real estate contract, Vital Elements to Check:

1. **Parties Involved:** Ensure the contract lists the names of the buyers and sellers.

2. **Representation:** Identify who represents whom in the transaction.

3. **Purchase Price:** Confirm the agreed purchase price.

4. **Close of Escrow:** Note the scheduled date for closing escrow.

5. **Initial Deposit:** Check the amount and terms of the initial deposit; generally speaking, an earnest money deposit is 3% of the purchase price. 

6. **Offer Expiration:** If there's an expiration date for the offer, it should be specified. Contractually, you have three calendar days from when your offer was presented. 

7. **Down Payment:** Determine the amount of the down payment.

8. **Type of Offer:** Clarify whether it’s a cash offer of a loan, FHA, or VA.

9. **Appraisal and Loan Contingencies:** Typically, appraisal contingency is for 17 days, and loan contingency is for 21 days unless agreed otherwise. These dates can sometimes be shortened, especially in competitive offer situations.

10. **Verification of Funds:** If you’re putting down a significant amount, like 20%, you must provide proof of funds with the offer to show you have the money for the down payment and closing cost.

11. **Security Precautions:** Protect sensitive information, such as blocking account numbers and using secure Wi-Fi.

12. **Property Investigation:** The standard period for property investigation is usually around 17 days or agreed-on days contractually. 

13. **Seller Disclosures:** The seller should provide disclosures, such as the preliminary title report and any relevant property disclosures, within a set period, often within 17 days or otherwise agreed.

14. **Review Periods:** Any time the sellers provide a brand new disclosure, these new disclosures provide five days for review and a recession period.

15. **Property Condition:** Confirm if the property will be delivered vacant or with tenants and what items will remain (like appliances and fixtures).

16. **Natural Hazard Disclosure:** Understand if the property is in areas prone to earthquakes, floods, fires, or other natural hazards.

17. **Safety Features:** Check the presence of smoke alarms, carbon monoxide detectors, and braced water heaters, as mandated by government regulations. Typically, sellers are responsible for addressing these retrofitting requirements before closing escrow; the certificate of compliance is essential for completing the escrow process.

18. **Fees and Closing Costs:** Determine how escrow, title insurance, transfer taxes, and HOA fees are divided between buyer and seller. The escrow will have a breakdown. 

19. **Home Warranty:** Ensure a home warranty is included, covering potential repairs. Typically, a home warranty is paid by the seller unless agreed otherwise. Home warranties offer a range of coverage options, encompassing areas such as air conditioning, pools, spas, and more. Buyers are encouraged to explore these coverages in detail, which may also include protection for roof leaks, appliances, and rekeying services.

Real estate Advisories and Addendas

1. **Advisories:** Check if the property is under specific advisories, like probate, and ensure related advisories are included in the purchase agreement.

2. **Tenant Occupancy:** If the property has tenants or a tenancy in common, you can use the appropriate purchase addendum.

3. **Sale Type:** Identify if it's a short sale, bank-owned, or if involved in a 1031 exchange, and include necessary addendums like the intent to exchange.

4. **Trust Advisory:** For properties in a trust, include a trust advisory.

5. **Sale Specification:** Clarify if it’s a standard sale or any another type, ROE, probate, short-sale,

6. **Loan Status:** If the buyer is obtaining a loan, the listing agent may need to check on the loan status on behalf of the seller.

7. **Financing Types:** Understand the type of financing involved, whether it's seller financing, a cash offer, FHA, or VA. 

8. **Occupancy:** Clarify the buyer's intent to occupy the property, as this affects the type of loan and terms. If the seller plans to remain post-closing, verify with the lender, which might alter the loan conditions.

9. **Contingencies:** Be aware of inspection, appraisal, and loan contingencies

- **Inspection Contingency:** Assesses the property’s condition, structural integrity, and habitability.

- **Appraisal Contingency:** Involves a lender's appraisal to determine the loan amount based on property value. If it is a cash offer, the appraisal contingency can be waived. 

- **Loan Contingency:**  Relates to securing a loan for the purchase. If co-signing is involved, ensure it doesn’t affect loan approval.

10. **Agreement Finalization:** Contingencies must be satisfactorily met to move forward with a binding agreement and secure the house.

Items included and excluded from the sale

The sale includes or excludes certain items, and it's essential to be clear about what items are included. Items listed in the MLS, flyers, and marketing materials or disclosures may not necessarily be included in the purchase price or be part of the sale unless explicitly stated in the agreement.

Included items typically encompass all existing fixtures and fittings attached to the property. This includes, but is not limited to, electrical, mechanical, and lighting fixtures; plumbing and heating fixtures; ceiling fans; fireplace inserts, gas logs, and grates; solar power systems; built-in appliances; windows, casement windows, and their screens; window coverings and rods; attached floor coverings; TV antennas; satellite dishes; garage door openers and their remote controls; mailboxes; in-ground landscaping; water features and fountains; water softeners; security systems and home automation systems, fireplaces and lightbulbs. 

Suppose the seller intends to exclude any item specified above, perhaps because it's not owned by the seller or was placed on the property by an agent, stager, or other third party. In that case, such items should be listed as excluded from the sale.

A typical example is a chandelier that appears attached and would ordinarily be included in the sale. If the seller wishes to keep such an item, it must be listed as excluded to prevent misunderstandings and complications during the sale process. The seller must specify each item they intend to take to ensure a smooth transaction.

Understanding Real Estate Disclosures: What Sellers and Buyers Need to Know

Statutory and Seller Disclosures in Real Estate Transactions

In real estate, information transparency is crucial for both sellers and buyers. One key aspect of this transparency is the range of disclosures sellers are contractually obligated to provide unless they are exempt. These disclosures are formalities essential for a fair and informed transaction.

1. Timelines and Exemptions for Seller Disclosures

Sellers have a contractually agreed-upon timeframe to complete and present their disclosures. Certain sellers may be exempt from providing these disclosures. This could include cases where a trust or a will is involved, or the seller has never lived on the property. In such cases, an Exempt Seller Disclosure form must be completed. This form requires answering all relevant questions and providing a copy to the buyer.

2. Types of Required Disclosures

•       Real Estate Transfer Disclosure Statement (TDS): This is a comprehensive disclosure that the seller must fully complete, answering all questions and signing. The TDS includes information that could affect the property’s value or desirability.

        •       Natural Hazard Disclosure Statement: This statement informs about any natural hazards associated with the property, such as being in a high or very high fire hazard severity area, flood area, and so on.

        •       Notice of Industrial Use and Military Ordnance: This must be disclosed if the seller knows of industrial uses or military ordnance in the vicinity.

        •       Special Tax Assessments and Illegal Substance Release: Sellers should disclose any special tax assessments or known releases of illegal controlled substances on the property.

3. Agent Visual inspection Disclosures

Real estate agents must conduct a thorough and intelligent visual inspection of the property. The findings from this inspection are documented in the Agent Visual Inspection Disclosure (AVID). Based on their inspection, agents are responsible for disclosing material facts that could affect the property’s value or desirability.

   - For properties built before January 1, 1978, sellers must provide buyers with a completed federal lead-based paint disclosure. Importance of Disclosures

Disclosures play a pivotal role in real estate transactions. They ensure that all parties have the necessary information to make informed decisions. As a buyer, it’s crucial to review these disclosures carefully and, as a seller, to understand your obligations and exemptions. Always consult a real estate professional to navigate these complex but vital aspects of buying or selling a property.

Allocation of Cost for Inspections

In real estate transactions, allocating costs for inspections, reports, tests, and certificates is crucial.

1. **Inspection Costs:**

   - Generally, the buyer covers the costs of various inspections. This includes termite, general, sewer, plumbing, and roofing inspections.

2. **Government Requirements and Corrective Actions:**

   - The seller usually pays for compliance with government requirements and immediate corrective actions. Examples include retrofitting, installing carbon monoxide and smoke detectors, and bracing water heaters.

3. **Reinspection Fees:**

   - If any fees are associated with reinspections related to the house's inspection and investigation, these are typically the buyer's responsibility.

In real estate, virtually everything is subject to negotiation. While the seller typically covers certain expenses, the buyer could end up shouldering some costs, depending on the terms agreed upon in the contract. In competitive markets, sellers often minimize their contributions toward inspections, repairs, and credits. Market conditions are significant factors; in real estate, nearly everything can be negotiated.

4. **Local and State Mandates:*

   - Buyers and sellers should seek information from knowledgeable sources regarding local and state mandates, especially concerning point-of-sale and ownership requirements.

   - Real estate agents may have expertise in some areas and cannot guarantee compliance with all cost and compliance statutes.

Contractual Obligation for Home Buyers and Sellers

Disclosure Timelines and Contractual Obligations

Disclosures, as specified by the contract, must be delivered to the buyer within a set timeframe – either in person within three days, electronically, or via email within five days. If the buyer doesn’t act or rescind within the given time, they are deemed to have accepted these disclosures.

Seller’s Right to Cancel

If the buyer fails to adhere to the agreed-upon timelines, the seller can issue a notice to perform and give the buyer two business days. If the buyer still doesn’t comply within the specified period, excluding weekends and holidays, the seller has the right to cancel the contract.

Tax Compliance and Escrow

The transaction must comply with both federal and California tax withholding laws. Escrow holders are responsible for ensuring that the correct amounts are recorded and that the seller provides sufficient documentation if withholding is not required.

Megan's Law Disclosure

Buyers can check for registered sex offenders in their prospective neighborhood. Depending on the offender’s criminal history, this information may include addresses or the community of residence and ZIP code.

Environmental and Hazard Disclosures

Sellers must legally provide buyers with natural and environmental hazard disclosures, including the “Earthquake Guide” and “Environmental Hazard Booklet.” This is particularly crucial for properties in specific flood hazard areas or high fire hazard zones.

Homeowners Association (HOA) Disclosures

For properties in an HOA, sellers must disclose any pending litigation, parking space details, recent meeting minutes, and contact information for the HOA management. Smoking restrictions and other pertinent regulations should also be disclosed.

Buyer’s Investigations and Responsibilities

Buyers are allotted a contractual timeframe to conduct property investigations, including general home inspections and specific checks for hazards like lead-based paint. The buyer is responsible for any damage caused during these investigations and must indemnify the seller from any resulting liability. That is why hiring inspectors with errors and omissions insurance is essential. 

Seller’s Obligations During Investigations

Sellers must ensure utility services are operational for the buyer’s investigations. They are also required to make the property accessible but are not obliged to move personal property.

Post-Escrow Obligations

Upon closing, the seller must provide the buyer with all necessary keys, passwords, and codes to operate locks, mailboxes, security systems, home automation systems, internet-connected devices, and garage door openers. This includes instructions on how to use all items included in the sale. If the property is a condominium or in a common interest development, the seller is also responsible for obtaining and providing items required to access association amenities and facilities. Additionally, the buyer may need to pay a deposit to the homeowners association for keys to access these HOA facilities.

Buyer and Seller Rights in Real Estate Agreements

Navigating a real estate transaction involves understanding the rights and responsibilities of both buyers and sellers, especially regarding the cancellation of agreements, performance notices, and the closure of escrow. This post aims to clarify these key aspects to ensure a smooth and fair transaction process.

**1. Buyer's Right to Cancel**

Buyers can cancel the purchase agreement after thoroughly investigating the property. If they find any aspect unsatisfactory, they can exercise this right in good faith, cancel the agreement, and receive their deposit back. If the seller fails to meet their obligations, the buyer may issue a notice for the seller to perform. If the seller still does not fulfill their obligations after receiving the notice, the buyer reserves the right to terminate their agreement. After receiving the performance notice, a grace period of two business days will be granted. It's important to note that this period does not include weekends or holidays, extending the timeframe for the seller and the buyer to fulfill their obligations or cancellations.

**2. Seller’s Right to Issue Notice to Perform**

If the buyer is not fulfilling their obligations or removing contingencies as required, the seller can issue a 'Notice to Buyer to Perform.' This notice must be in writing and give the buyer at least two business days to act. Similarly, a 'Notice to Seller to Perform' can be issued if the seller needs to meet their contractual obligations.

**3. Validity of the Notice to Perform**

Notices to perform are subject to specific rules. They must provide at least two business days and cannot end on a weekend or legal holiday. If a notice is incorrectly issued or provides less time than required, it is deemed invalid. A new, correctly timed notice must then be given.

**4. Demand to Close Escrow**

The buyer and seller can demand to close escrow if either party fails to meet their obligations to close escrow. This demand must be formally signed and gives the recipient three business days to close escrow after delivery of the notice.

**5. Completion of Agreed Repairs**

If the seller has agreed to make repairs based on the property's investigation, these must be completed before the final verification of conditions. This verification typically occurs five days before the close of escrow. While not a sale contingency, it confirms that the property is maintained and all agreed repairs and seller obligations have been fulfilled. This is the time to demand if the seller must move a bulky item from the property they left behind and tie up last-minute commitments.

Understanding your rights and obligations in a real estate transaction is vital for buyers and sellers. These elements ensure that both parties understand the process and can make informed decisions. Please consult real estate professionals to help navigate these aspects effectively.

Understanding Broker Compensation and Escrow in Real Estate Transactions

Agent’s Scope of Duty

Real estate agents play a crucial role but have specific limitations. They do not determine the sale price for the buyer or seller, guarantee the property's condition, or the adequacy of services, products, or repairs. The seller gets to choose which offer they like best. They do this by looking at prices of similar recently sold properties. Then, the buyer decides how much they want to offer based on this information. Agents are also not responsible for inspecting common areas, identifying property defects, inspecting public records or permits, verifying square footage, or providing legal or tax advice. Their responsibility is primarily to help facilitate the transaction.

Role of the Escrow Holder

The escrow holder acts as a neutral third party, orchestrating the transaction between the buyer and seller. They follow the instructions provided by both parties to ensure the transaction is executed correctly. The escrow holder’s general provisions will take precedence if they conflict with the agreement.

Documentation and Compliance

Key documents, including the agreement, counteroffers, and amendments, should promptly be delivered to the escrow holder. Both parties authorize using copies and electronic signatures as originals for escrow. The escrow holder manages deposits and payments and ensures compliance with relevant laws, including withholding requirements.

Legal and Professional Advice

Buyers and sellers are advised to seek legal, tax, insurance, and other professional assistance. The complexities of real estate transactions often require expertise beyond the scope of what agents and escrow holders can provide.

Understanding the nuances of broker compensation and the function of the escrow holder is essential for a successful real estate transaction. Both buyers and sellers should familiarize themselves with these aspects and seek professional advice when necessary to ensure their interests are adequately protected.

**Right to Offer and Accept Offers**

   - Sellers have the continuous right to offer their property for sale.

   - Before the acceptance of an offer, sellers can accept other offers.

   - Back-up offers are permissible and can be considered.

**Importance of Written Acknowledgement:**

   - All parties must acknowledge receipt of the offer in writing.

   - This includes confirmation of agency relationships.

   - “Time is of the essence” – this phrase underlines the importance of timely actions in the contract.

**Comprehensiveness of the Agreement:**

   - The agreement is comprehensive and final.

   - It includes all understandings between the parties.

   - Any changes must be made in writing by both buyer and seller.

**Legal Representation:**

   - Signatures or initials must be from legally authorized signers.

   - if in an LLC, probate, trust, corporation, or partnership, holding a power of attorney, or other entity, These signers represent the entity in a representative capacity, not an individual capacity.

   - In cases involving trusts, LLCs, or other entities, ensure the correct person is signing.

   - The agreement should identify the capacity of the person signing.

   -If the entity is probate or trust, include the full name of the probate or trust and any applicable case numbers.

**Disputes and Disagreements between the parties:**

   - If a purchase transaction is not completed or there's a default, liquidated damages and mediation or arbitration might be involved. In this case, your deposit could be in jeopardy, and you must seek advice from an attorney.

Real estate transactions involve many legal intricacies. It's always wise to seek legal advice if and when there is disagreement; understanding your agreement and ensuring all documentation is correctly signed and acknowledged can save you from potential disputes and complications in the future.

Agency Relationships and Broker Commissions:

- It's essential to clarify the relationship between the seller, the buyer, and their respective agents.

- The seller's broker agrees to pay the buyer's broker a commission, often from the sale proceeds held in escrow.

- The Multiple Listing Service (MLS) typically outlines this commission structure if both brokers are participants.

Presentation of Offers:

- All offers made by the buyer’s agent must be presented to the seller.

- The seller’s agent should confirm in writing that the offer has been presented.

Importance of Property Inspection:

   - Buyers should thoroughly investigate the physical condition of the property.

   - This includes land, improvements, and any potential issues.

   - A general physical inspection might not cover everything; consulting additional experts is wise.

Broker’s Limitations:

   - Brokers are not experts in all fields and may be unable to advise on specific issues.

   - It's advisable to seek professionals outside a broker’s expertise.

  Areas for Detailed Inspection and Consideration:

   - The age and condition of the property’s systems and components.

   - Land boundaries, topography, and stability.

   - Environmental and natural hazards like earthquakes and flooding.

   - Building permits, zoning, and other governmental requirements.

   - Potential rental property restrictions and neighborhood conditions.

Regarding real estate transactions, it's essential to grasp the details, whether you're the buyer. Ensure you have the right experts for inspections and ask plenty of questions. Conduct thorough investigations to ensure you're comfortable with every aspect of the property before proceeding.