Frequently Asked Question #5 - How does the RPA Purchase Contract work in California

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Real Estate Agent with Remax Estate Properties - BRE #01368971 DRE #01368971

          CALIFORNIA RPA PURCHASE CONTRACT


The California Residential Purchase Agreement (California Association of Realtors form RPA-CA) is a standard form purchase contract There were significant changesmade in the revised forms released in 4/10 amd 11/10 , with changes in languagein many paragraphs.

Initial Offer: The initial offer that a buyer makes to acquire a property is made on the REP-CA standard form Residential Purchase Contract. Some of the important items which must be included in the contract are the following:

1. Purchase Price, Financing, and Deposits: The purchase price, the amount of the deposit (usually 1.5 to 3% of the purchase price) and if the deposit is to be made in increments during the contingency period, the amount of the new loan, any secondary financing required, including whether the buyer is requesting that the seller provide financing, and the amount to be funded by the buyer at the close of escrow are all included in the purchase contract. If the buyer wants to make it clear the terms of the new loan required to close escrow, the interest rate, term, etc. may be included. The length of the escrow period shall also be stipulated.



2, Stipulate What Closing Costs to be Paid by Buyer or Seller: Certain closing costs such as City and County Transfer Taxes, HOA transfer fees, Escrow Fees, etc. are often split among the buyer and seller in a manner typical for the city of the sale, however the allocation of these fees between the buyer and seller should be clearly stipulated in the contract.

3. Buyer Loan Contingency: The buyer may require a separate loan contingency that stays in effect until the close of escrow. In addition, the buyer may require an additional loan appraisal contingency, that states that the appraisal prepared by the lender shall be at least equal to the purchase price. This is important, because if the appraisal does not support the purchase price, the lender may require a larger down payment by the buyer. If there is no loan contingency, the appraisal contingency is normally also waived by the buyer within the 17 day contingency period.

3. Brokers and Commissions: The purchase agreement will also stipulate the real estate brokers involved in the transaction, who they are representing, and the commissions earned.

4. Additional Items Included in Purchase: Any items not permanently attached to the property which the buyer wants to be included in the purchase should be clearly indicated in the purchase agreement.

5. Method of Buyer taking Title: The buyer should carefully consider how they will take 
title to the property.This has both economic, estate planning  as well as legal ramifications

6. Date of Expiration of Offer: The date and time of expiration of the offer must be stipulated. The normal time period is approx. 3 days, enough time for the seller to reasonably consider the offer, but should not be for a period of such length to enable the seller to "shop" your offer..

Acceptance or Counter Offers:

1. Acceptance of Initial Offer by Seller: The seller may accept the offer and deliver it to the buyer or their authorized agent. The Purchase Contract provides for a Confirmation by the Buyer of the Acceptance by the Seller of the Buyer's offer, however, a binding contract is created by receipt of the Accepted Offer from the seller by the Buyer or their authorized agent, whether or not confirmed by the Buyer's signed Confirmation..

2. Counter Offers: The seller may return the initial Purchase Agreement with the Buyer's offer, with an indication that they are accepting the terms offered by the Buyer with the exception of certain items. During the period after the Seller has submitted the counter offer, the Seller stipulates how long the buyer has to accept the counter offer. The buyer may elect to accept the counter offer or make another counter offer to the seller. This process of counter offer by the Seller  followed by a counter offer by the buyer may occur as many times as necessary for the two parties to finally agree on the terms of the final purchase contract.

3. Multiple Counter Offers by Seller to Multiple Buyers: The Seller may also respond to the initial Buyer's offer to Purchase by indicating that they are making counter offers to multiple potential buyers.

The COUNTER OFFER form allows a seller to give counter offers to more than one buyer without the risk of selling the property twice. Paragraph 4 is the Multiple Counter Offer paragraph. Anyone using this paragraph must understand a few key concepts.

First, if the seller wants to issue multiple counter offers, the box at the beginning of the paragraph must be checked.

Second, if the Multiple Counter Offer paragraph is checked, a contract is not created by a buyer signing the COUNTER OFFER form and returning it to the seller.  This is only the first step in a Multiple Counter Offer. Once a Multiple Counter Offer has been signed by a buyer and returned to a seller, the seller must subsequently re-sign the COUNTER OFFER form in Paragraph 7 and deliver the re-signed form back to the buyer. If the seller does not subsequently re-sign the COUNTER OFFER in Paragraph 7, then a contract has not been created.

It is important to remember that a seller who has written a Multiple Counter Offer is under no obligation to re-sign any of the counter offers actually returned to the seller. Also, the first buyer to sign and return a Multiple Counter Offer to a seller does not have any priority or other rights over any other buyer who signs and returns a Multiple Counter Offer to a seller. No contract is created until a seller subsequently re-signs in Paragraph 7 and delivers the re-signed form back to the buyer.

Time line for the Escrow Process: There are specific
time frames normally stipulated in the Purchase Contract for certain actions which must be performed by the buyer and seller.some of which are discussed below. The escrow company will perform certain escrow services which will result in certain closing costs to both the buyer and seller

The Purchase Agreement contains protections for both the buyer and seller of residential real estate,  as follows:

1. Required Seller Disclosures: There are 7 day standard default time periods for the seller to deliver required disclosures and reports to the buyer for their inspection. These include the following:

   a. Transfer Disclosure Statement, in which the seller discloses the current status and 
       condition of the home, and any other defects which the seller is aware.
   b. Natural Hazard Zone Disclosure Report, and Natural Hazards Disclosure Statement
       in which the seller discloses whether the property is in a flood zone, high risk earthquake
       zone, or a high fire risk zone
   c. Earthquake Hazards Booklet and Environmental Hazards Booklet
   d. Lead Based Paint Disclosures
   e. Whether the home is a condominium or part of a planned unit development (P.U.D.), If so,
       the seller has 3 days to request that the Homeowners Association provide relevant HOA
       documents, including financial statements, current years budget, an analysis of the required
       level of reserves, and meeting minutes
   f.  Smoke Detector Statement of Compliance
   g. Supplemental Statutory and Contractual Disclosures, in which the seller provides other
       required disclosures, such as insurance claims made within the previous 5 years, whether
       someone has died in the property within the past 3 years, among others.
   h. Request a preliminary title report, that would report any liens, encumbrances or easements
       affecting title to the property.
   i.  Water Heater Statement of Compliance
   j.  Statewide Buyers and Sellers Advisory- Discusses issues which a buyer should consider
  k.  Sellers Property Questionnaire-  Seller's disclosure of property condition
    
2. Loan Prequalification Letter from Buyer: There is also a 7 day period after acceptance of the buyer's offer whereby the buyer must deliver to seller a) a letter from a lender or a mortgage broker, that based upon a review of the buyers financial condition, that the buyer is prequalified or preapproved for the new loan specified in the buyers offer, and b) written verification of buyers deposit and closing costs.

3. 17 Due Diligence Contingency Period: There is a standard 17 day contingency period for the buyer to read and approve the disclosures given above by the seller. and complete any investigations or inspections of the property which the buyer wants. During this contingency period, the buyer may request that the seller make certain repairs disclosed in the inspection reports, however the seller is under no obligation to do so. The buyer may cancel the purchase any time during this contingency period. If the buyer has not removed all contingencies by the end of the 17 day contingency period, the contingency period is effectively continued until the seller sends to the buyer a Notice to Perform, which requires the buyer to remove all contingencies within the agreed upon period of time in the contract (usually from 24 to 72 hours), or the contract will be canceled. Once the buyer removes all contingencies, failure by either the buyer or seller to close escrow on time may be a breach of the contract. If the buyer breaches the contract, the seller may require forfeiture of the buyer's deposit, as liquidated damages. The RPA-CA is designed to let the buyer, seller and agents know where they stand contractually at any given time because significant decisions must be in writing. Since most contingencies expire at the same time (17 days), a buyer who is satisfied with the property or who has agreed with the seller on repairs can remove the contingencies with only one document. The requirement of written contingency removal avoids surprises associated with inadvertent contingency removal and implied waiver of time periods.

4. Termite Report: The seller normally pays for the pest/termite inspection report, and the buyer pays for all other inspections including mold and mildew inspections. The termite report will indicate whether certain conditions indicating infestation by termites or conducive to the future infestation by termites are present. These would include indication of wood damaged by termites, dry rot, earth to wood contact, debris under the house, and moisture conditions. After completion of the inspection, the inspector will prepare a report with two sets of recommendations. The first referred to as Section 1 repairs are required repairs and are normally paid for by the seller. The second set of recommendations are referred to as Section 2 repairs, and are recommended repairs to prevent future termite damage, and are paid for by the buyer if they choose to have the repairs done.

5.. Final Buyer Inspection: Usually within 5 days of the planned close of escrow, the buyer should inspect the property to verify its condition, that all repairs required by the seller have been completed, and that the property has been properly maintained during the escrow period.

6. Mediation Provision: The standard purchase agreement has both a mediation provision, as well as an arbitration provision. This provides that any disagreements between the parties shall first try to be resolved through mediation, and then, if approved by both seller and buyer, through arbitration.

7, Liquidated Damages Provision: This section of the contract stipulates what damages the seller may claim for breach of contract by the buyer and is usually limited to the amount of the deposit, limited to  3% of the purchase price

8,Agency Disclosures: Both the buyer and seller will receive a Disclosure Regarding Real Estate Relationships whereby the real estate agents disclose who they are representing in the transaction.

9. Other Disclosure Documents: Other disclosure documents which may be provided include a  mold disclosure statement, a data base disclosure statement (which includes information on accessing law enforcement agencies on sex offenders living in a neighborhood) a market conditions advisory, a sellers advisory. that discuss items that a seller should carefully consider when selling their property,  a buyers inspection advisory, where the buyers broker advises the buyer as to important things to know about purchasing the property, and a Supplemental Property Tax Statement which discusses details on supplemental property taxes which the buyer will receive after close of escrow,

For additional information on the California Purchase Agreement, see the California Department of Real Estate
web site

This information was obtained from my website at Purchase Contract



**NOTE: The information contained at this site is for educational purposes only and is not intended for any particular person or circumstance. A competent tax or legal professional should always be consulted before utilizing any of the information contained at this site.**

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