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The C.A.R. Residential Purchase Agreement

The California Residential Purchase Agreement and Joint Escrow Instructions form ("RPA") published by the California Association of Realtors ("CAR") is used in the majority of residential purchase transactions in California. The RPA is a generally well drafted form that is revised periodically. Nevertheless, depending on the transaction, Sellers and Buyers may want to revise certain provisions of the RPA. Following are some comments and suggested revisions.

3A [INITIAL DEPOSIT] – If the Buyer is not willing to put up the Deposit upon signing the RPA, the Seller should be concerned about the level of the Buyer's interest in purchasing the Property.

3B [INCREASED DEPOSIT] – If the Deposit is increased, the Seller needs to include a liquidated damages clause that applies to the increase.

3C [ALL CASH OFFER] – If 3C is checked, then 3H is inapplicable and should be stricken.

3J(2) [LOAN CONTINGENCY] – If there is a loan contingency, the Buyer should revise the second and third sentences of section 3J(2) to read as follows: "Buyer's lender's approval of the loan(s) specified above is a contingency of this Agreement unless otherwise agreed in writing. Failure of the Property to appraise at the purchase price entitles Buyer to exercise the cancellation right pursuant to the loan contingency." Without this change, if there is no appraisal contingency or the appraisal contingency has been waived or removed and the lender declines to make the loan due to a low appraisal, the Buyer would still be obligated to purchase the Property.

3J(4) [NO LOAN CONTINGENCY] – If 3J(4) is checked, the Seller should delete sections 3J(1), (2), (3), and (5) and 3K, all of which contain provisions that should not apply if there is no loan contingency.

7B(2)(i) and (ii) [GOVERNMENT REQUIREMENTS AND RETROFIT] – Neither Buyer nor Seller should sign an RPA if its box is checked, as this would create an obligation to pay for mandatory government inspections, reports or retrofits. Unless, prior to signing the RPA, the Buyer or Seller can determine with certainty the extent of such obligation.

7C(2)(b) [ESCROW AND TITLE] – Buyers should assure that a major title company underwrites the owner's title policy, because the value of the title insurance policy is only as good as the continued financial strength of the company issuing the policy.

8B(1) [ITEMS INCLUDED IN SALE] – Sellers should strike 8B(1). The manner of attachment of an item to the Property is only one of the factors considered in determining whether an item is a "fixture" and thus a part of the Property.

8B(2) – The list of items in 8B(2) is helpful because it refers to specific elements of the property, but "built-in appliances" should be stricken by the Seller if the Seller will be removing any appliances from the Property (whether or not the appliances appear to be "built-in"). Also, Buyers should assure that the check boxes for stoves, refrigerators and washers and dryers are checked if they are being purchased, regardless of whether or not they appear to be "built-in".

8B(4) – Buyers should verify that this box is not checked, unless an existing home automation system is not included in the sale.

8C [ITEMS EXCLUDED FROM SALE] – If any audio or video components (whether or not they appear to be "attached" to the Property) are expected to stay with the Property, the Buyer should include a detailed description of all such components.

9C [Seller remaining in possession After Close of Escrow] – If the Buyer is to be compensated in any manner for the Seller remaining in possession of the Property after Close of Escrow, the Buyer should use C.A.R. Form RLAS (instead of Form SIP), which addresses some important issues regarding the security deposit, late charges, storage, pets, individual obligations, insurance, attorney fees and integration. However, the Buyer should strike section 36 [MEDIATION] from Form RLAS.

9D [Tenant-occupied property] – If the Property is to be tenant occupied after Close of Escrow, the Buyer should, during the period allowed for Buyer Investigations, have the lease reviewed, perform tenant credit and background checks, and get an estoppel certificate confirming the current rent, term, security deposit and other provisions of the lease.

10A(4) [STATUTORY AND OTHER DISCLOSURES AND CANCELLATION RIGHTS] – Sellers should delete this section. The Seller Property Questionnaire requires responses from the Seller to more than 50 questions, including questions related to insurance, mold, encroachments, liens, legal claims, title and other matters. Answers by the Seller (even in the negative) create potential causes of action by the Buyer for misleading statements of the Seller, based on attributed knowledge, duties to investigate or matters that the Seller "should have known". The references at the end of 10A(1) to C.A.R. Forms SPQ and ESD should also be deleted.

11 [CONDITION OF PROPERTY] – For a Seller, the "as is" clause in this section should be supplemented with a considerably more detailed provision which includes an acknowledgment that the Seller has no duty to inquire or investigate regarding any matter related to the condition of the Property. Also, Sellers should extensively photograph the Property on the date of Acceptance to document its present physical condition. Buyers should do the same as soon as possible after the date of Acceptance.

11C – Buyers should also consider having the Property surveyed, to reveal property lines, perimeter fences and walls, physical encroachments or setback encroachments, street access or utilities easements and other matters. In addition, Buyers should, either personally or through an advisor, visit the local Planning Department to get information about planned major construction nearby, adjacent new home construction, road widening, zoning and nonconforming uses. Accessing Police Department crime reports may also be advisable, particularly if the Buyer is unfamiliar with the area.

12A [BUYER'S INVESTIGATION OF PROPERTY AND MATTERS AFFECTING PROPERTY] – Buyers should ask if a complete set of building plans is available, to confirm that permits were received for all improvements and to use for any future addition or remodel. A comprehensive property inspection report would also confirm that building permits were received for all improvements.

13B [TITLE AND VESTING] – Sellers should clarify that "which Seller is obligated to pay off" in clause (i) refers only to monetary liens that were created or expressly assumed by Seller.

13C – Sellers should delete this clause. It is overly broad, and unnecessary due to a Seller's duties of disclosure. Including the clause suggests that the Seller has accepted some title related duties beyond those required by law.

13D – Sellers should attach a form of Grant Deed that makes the conveyance subject to the two statutory Seller warranty items.

14 [TIME PERIODS; REMOVAL OF CONTINGENCIES; CANCELLATION RIGHTS] – Both Buyer and Seller should delete the words "in good faith and". Good faith is always required by parties to a California purchase agreement. Adding "good faith" language suggests that something more is required to comply with this clause. Also, Buyers should add a provision that gives independent consideration to the Seller to support enforceability of the contract.

14B(3) – Sellers should add an "outside date" for Seller Deliveries, beyond which the Buyer has the right to either waive the applicable contingency or cancel the Agreement.

14E – If time is critical, then 2 days before the end of the Buyer contingency period the Seller should deliver a Notice to Buyer to Perform, so that the Buyer will be obligated to remove contingencies on the agreed contingency period end date.

14G – Similarly, if time is critical, then 3 days before the scheduled close of escrow the Seller should deliver to the Buyer a Demand to Close Escrow, so that the Buyer will be obligated to close escrow on the previously agreed closing date.

16 [REPAIRS] – This is a general statement regarding installation, quality and appearance standards for Repairs. If Repairs are extensive or specialized, a Buyer may want to add details such as brand names, model numbers, specifications regarding materials, measurements, fit, manner of installation, licensing of contractors, building permits and government inspections.

19 [REPRESENTATIVE CAPACITY] – The Buyer should confirm representative capacity of the Seller within 3 days after Acceptance, to assure that the Buyer is not wasting time dealing with a party who does not have the authority to sell the Property (for example, both spouses must sign for any conveyance of community real property). Also, the Seller should confirm the authority of a Buyer who is signing in a representative capacity for a trust, corporation, limited liability company or other entity.

20A [JOINT ESCROW INSTRUCTIONS TO ESCROW HOLDER] – The Seller should add that any owner's affidavit to be provided by the Seller will: (i) apply only to actions of the Seller, (ii) not require the Seller to make any inquiries, investigate public records or inspect any part of the Property, and (iii) not increase the Seller's liability beyond the liability of Seller otherwise incurred in the RPA.

22 [DISPUTE RESOLUTION] – It is generally best for a Seller to delete all of section 22. Mediation is costly and time-consuming. Including a mediation provision invites disputes by the Buyer. A matter submitted to arbitration can be decided by a retired judge or any attorney with five years of experience. Appeal of a faulty arbitration award on substantive grounds is very unlikely to be successful, so if the matter submitted to arbitration is significant (such as a specific performance demand, a claim related to condition of the property or a termination of contract action) a Seller is well advised to have the issues resolved in a court of law rather than in arbitration.

32 [ACCEPTANCE OF OFFER] – If the Seller's acceptance is subject to a counter offer, it is important for the Seller to assure that both the box is checked and the date of the counter offer is entered where provided, to avoid: (i) unintentional formation of a binding contract, or (ii) confusion, when multiple counteroffers have been sent and received by the parties.

32 [CONFIRMATION OF ACCEPTANCE] – The Seller should promptly confirm (and correct if necessary) any date entered on the blank line in this section, because the contingency period and the date for Close of Escrow are determined by the date entered. The same is true of the date of Confirmation of Acceptance inserted into the ESCROW HOLDER ACKNOWLEDGMENT section.

Certainly, most residential purchase transactions run their course to either closing or termination without significant controversy. A small percentage will require a dispute resolution process, either through mediation and arbitration (provided for in the CAR form) or litigation. Buyers and Sellers who are not willing to accept the risks inherent in relying on CAR forms filled-out by their broker or agent may want to engage legal counsel for document review.

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This article is merely a brief comment regarding its subject matter, for informational purposes only. It is not intended to be comprehensive, create an attorney-client relationship with the reader, or serve as a substitute for legal advice.

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