35,000 homesper month in California? People love California; it’s the most populous state in the US.
It is a home of diversity with natural beauty and cutting-edge technology.
If you are considering residing in California, your choice is pristine.
Before buying that home, you need to understand the California residential purchase agreement. Understanding your rights and the terms in the transaction empowers you to negotiate the best deal.
The 2022 revised California real estate purchase agreement is now sixteen pages long. Four more pages than the previous version. Highlighting this statistic is not intended to scare you. However, you are not alone if you think reading through the entire purchase agreement is tedious.
Reading and understanding the California residential purchase agreement doesn’t have to be daunting. Here is a guide to help you navigate the new 2022 purchase agreement.
California Residential Purchase Agreement
The California residential purchase agreement is the pragmatic roadmap to a California real estate transaction. The document specifies the terms of the parties’ agreement in real estate transactions in California.
The paragraphs of the document detail situations with consequential impacts on the buyer or seller. Understanding this document is crucial for you because it impacts your real estate transaction and can make or break the deal. For example, if you miss a deadline agreed to in the purchase agreement, you may be served with a notice to perform by the opposing party.
Late in 2021, the residential purchase agreement was revised to include new guidelines—revision of the agreement targets to make transactions smoother and consumer-friendly. The move also makes salient deal points clearer for everyone involved in the transaction.
Suppose you are a home buyer or seller in California. In that case, you need to be up to speed with the new adjustments or face potential pitfalls, failures, and stressful situations. The first time you glance at the purchase agreement, it can be overwhelming and a lot to digest.
The purchase agreement is lengthy, and some terms and concepts may be unfamiliar. So, what are the essential bullet points you will not want to miss, you ask?
Key Elements of California Residential Purchase Agreement 2022
With the new adjustments, you must be wondering how the California purchase agreement will affect me? The new purchase agreement outlines the prices terms and details for real estate transactions in California.
This legally binding document features every aspect of the residential sale, from disclosure statements to escrow instructions and all the details in between. Understanding these key elements ensures that your expectations are clear.
Property Address and Buyers Investigation of Property
Before anything else, the Residential Purchase Agreement (RPA) highlights that your purchase agreement must identify the property at stake. Sometimes real estate professionals call this the subject property.
The new 2022 California Residential Purchase Agreement states, “Postal/Mailing address may be different from city jurisdiction. Buyer is advised to investigate.” This item is critical for areas like Beverly Hills, where the City of Los Angeles serves the Beverly Hills Post Officeneighborhood even though it shares the 90210 zip code.
You need to have property details and the exact address of the property.
The property identification segment includes information like the seller and buyers’ identities. The identities may include a legal name, company name, or the name of a person’s trust. The information is crucial in the verification of the existence of the property and the parties involved.
Before investing too much time and resources in acquiring the property, you need to know the details of what you are buying.
As a buyer, you have the right to conduct investigations on the prospective property. These investigations allow you to evaluate aspects like the home’s general condition, pests, organisms, and the land’s physical condition.
If you are a buyer, before any investigations, you need the sellers’ written consent. Then, the seller should make the property available for investigation. However, the seller does not have to move any existing property during the investigation phase.
If you are a buyer, before closing that California transaction for your home, you can avoid problems by thoroughly investigating the property before the purchase. Don’t forget to review all the disclosure documents the seller provides in addition to the title report for the subject property. Make sure your purchase agreement allows for a property inspection so that you have an opportunity to protect your best interest. You must complete all property investigations before the deadline specified in your purchase agreement.
Terms of Purchase and Purchase Price
The residential purchase agreement requires the California contract to include the offer price and means of payment.
Your purchase agreement commonly features earnest money requirements. This amount goes towards the down payment.
Under the purchase terms, your contract should include purchase price, close of escrow, expiration of the offer, initial deposit, loan amount, additional finances, and occupancy type.
Buying a home in California is a costly investment. You may consider financing your investment with both cash and a loan or even two separate loans. Your contract should specify your loan financing plan in as much detail as possible.
Note that the occupancy type will determine the type of loan and interest rate the lender offers. Primary residence occupancy has the most advantageous rates. The investor occupancy type will be significant if you are planning to utilize a 1031 tax strategy.
When sending your offer as a buyer, providing the type of financing is obligatory. You will provide details of how you intend to make payment for the property.
The financing options can be either cash basis or first or second mortgage loans. The terms of the loan should be detailed in the contract. In some instances, the buyer might need more than one loan to purchase the property. In this instance, a second mortgage will apply.
Additional financing amounts and terms need clear detailing. Any factors that might affect the financing of the purchase should be included.
If the buyer considers paying cash, they need to offer proof in form of a letter from the bank. The seller can verify the availability of cash to avoid buyers who make attractive offers without the ability to pay.
If your finance options are a loan, the seller will require pre-approval evidence of the loan. The goal is to identify that the finance strategy will not pose problems. As a buyer, it is best to provide a fully underwritten pre-qualification with your purchase contract.
Financing is an essential part of the purchase agreement. The seller needs certainty of the buyer’s ability to pay, especially when it comes to multimillion-dollar properties. The California residential purchase agreement makes it typical for the seller to ask for financing term details.
Closing Dates and Costs
Your purchase agreement should feature the transaction closing date. The real estate purchase agreement stipulates that any adjustments on the closing date and costs should be agreed to in writing.
Transfer of property only applies to the closing date and time. The buyer and seller should also include the closing costs. Who covers the costs and the amount vary from one property to another.
In some cases, the buyer and seller may agree to split the bill.
All details on closing costs and dates should be featured in your purchase agreement.
If your purchase agreement does not include the details, request to have them. This prevents you from delays and uncertainties on when you will own your prospect propertylegally.
Real Estate Taxes and Special Assessments
Real estate taxes should be prorated between the buyer and the seller. The seller must pay all taxes due up to the day of closing.
If the taxes due are not billed, estimations should be done on the basis of the most recently available bill for taxes.
You can agree to pass the charges for unpaid bills through escrow. If you are a buyer, you also have the responsibility to pay all taxes due after closing.
If the seller had paid taxes for the entire year, the parties would agree on prorating the taxes, then the seller will be provided with a credit on thier net proceeds.
No one wants to be on the wrong side of internal revenue service (IRS). However, you can avoid unfair outcomes by properly prorating real estate taxes according to the residential purchase agreement and consulting with licensed tax professionals. The escrow company will also be there to assist you with tax prorations.
Items Included and Items Excluded
According to the California Residential Purchase Agreement, your purchase contract should feature items to be included or excluded. Unless noted as items included or excluded a traditional real estate sale only comes with fixed items attached to the property.
The inclusions may be items integral to the functioning of the property and appear attached like a flat-screen television. For example, the television is seen as personal property while the T.V. bracket is fixed to the structure. In the previous version of the purchase agreement, the items included less specific items, but the new version will include commonly disputed items like bathroom mirrors. The new residential agreement has sixteen items, in addition there is room to write in custom items to be included in the sale.
If you include items like furniture or other personal property in the contract, be sure to check with your real estate agent and lender because your loan may not cover personal property. If written into the purchase contract, this may lead to potential problems with your loan.
The new items include microwaves, dishwashers, video doorbells, smart home control devices, security camera equipment, and potted plants.
A seller can choose to keep some items of the home. These items feature in the “Items Excluded” section and will not be included in the sale.
During property showings, the seller may stage some items to boost the appeal. However, the items may not be part of the sale. Clarity on the comprehensive package of the home is practical, with the items included and excluded.
Understanding the inclusions and exclusions of your purchase agreement makes it easier to estimate the property’s value. Most importantly, it creates room for objective price negotiation.
If you are buying a property, ascertain your agreement includes fixtures that come with the house and what is excluded.
Joint Escrow Instructions
Part of your purchase agreement must feature joint escrow instructions. These are instructions from the buyer and seller to the escrow holder.
The escrow agent may offer additional instructions necessary to complete the transaction. If both parties agree to the terms, they can sign reasonably.
The escrow holder has a fiduciary duty to the buyer and the seller.
They must follow the express escrow instructions to the latter.
California Residential Purchase Agreement and Joint Escrow Instructions 2022 require the holder to act honestly and ethically.
The holder’s operations and transactions should be in the interest of the client.
Some of the terms the escrow agent must meet are; the holder is accountable for funds in the account until the parties meet all the necessary obligations. The broker also records all deposits to the escrow account. In the event of a dispute, a mutual release agreed and signed by the buyer and seller is necessary to advise the escrow holder how the initial deposit or other funds must be distributed.
The escrow agent should provide any relevant details of the transaction. The information should be readily available and accurate.
In real estate transactions, you often need agents and brokers to assist in transactions. The brokers are not parties to the residential purchase agreement. However, in escrow instructions, they are legible parties for the purposes of compensation as the escrow agent distributes the real estate sales commission.
The escrow agent can withhold specific federal and state amounts. In situations where the seller does not deliver a tax withholding affidavit, escrow can withhold funds on behalf of the Internal Revenue Service.
You should trade with your escrow agent within the framework of the California Residential Purchase Agreement.
Compliance with the purchase agreement avoids delays and legal issues.
California Residential Agreement and Joint Escrow Instructions 2022 offers you a road map for an effective transaction.
There are essential disclosures in the California Residential Purchase Agreement. Like any other state, California requires a set of disclosures during property sales. If you are a buyer, you can cancel the contract if the seller fails to provide the required disclosures.
Transfer Disclosure Statement (TDS) and Natural Hazard Disclosure (NHD)
The seller should disclose any information on the subject property that they are aware of. For example, the transfer disclosure statement includes insights like leaky roofs and any recent deaths on the property in the last three years.
The seller should include all information about the appliances. Whether the appliances are operational or not, the seller is required to disclose them in the TDS.
In the California Civil Code, natural hazards prone to affect a property need disclosure. Before any home sale, the seller must fill in the NHD form. The form asks questions that prompt information on potential hazards.
Questions like “is the property located in flood zones?” offer insight into the natural risks of the property.
The seller traditionally hires a professional third party to prepare the NHD property.
Lead Based Paint Disclosures
You deserve to know whether the property in question has lead hazards.
Lead exposes you to health risks like brain and nervous system damage, kidney and bone marrow problems, and hearing loss.
If you have children, a home with lead exposurecan slow their growth rate.
Luckily, California Residential Purchase Agreement requires sellers to disclose lead hazard reports. The seller must also allow the buyer to inspect for lead-based paint hazards per federal guidelines.
Home Fire Hardening Disclosure
California is among the highly affected states by wildfires in the United States. The California residential purchase agreement protects buyers from buying at-risk properties without knowledge. The agreement requires sellers of homes in high fire hazard areas to disclose the fire safety requirements.
This section should disclose whether the home has known fire hardening vulnerabilities. A report on fire hardening status and compliance with defensible space requirements is compulsory to include.
This disclosure allows you to determine whether the fire hazards are something you are willing to invest in.
Defensible Space Disclosure and Addendum
The seller should disclose if the property complies with defensible space law.
The seller signs an addendum to the contract to indicate compliance.
Regardless of the age of a property, every residential owner should be complacent with defensible space laws. The laws serve the best interest of the buyer and any homeowner.
The primary goal is to minimize the risk of a home catching fire.
The disclosures are dependent on the condition of the home. For instance, if the property is subject to other rules with a home owners association, the condominium disclosure may be necessary. Other essential disclosures that the seller needs to provide are:
- Natural and environmental disclosure
- Megan’s law disclosure
- Termite damage disclosure
- Easement disclosure
- Septic disclosure
You have the right to any information that affects the value and desirability of your target property or material facts. California law positions the disclosures strategically to protect homebuyers from being taken advantage of by unscrupulous sellers.
It would be best if you went through every disclosure document to understand the risks and underlying factors of the property.
In some circumstances, the buyer may not need the disclosures. For instance, if you intend to demolish the property and rebuild a home, the disclosure may not seem as important to you. You should still review disclosures for items such as easements or historical limitations that would limit renovation or development.
Regardless of the circumstance, you can not give up the right to receive the statutory transfer disclosure statement as a buyer. Most sellers have the responsibility to provide the disclosure regardless of the circumstance unless, for example, the property is a bank-owned foreclosure.
Contingencies in the California Real Estate Purchase Agreement
The purchase agreement informs you when and how you can cancel the contract. Not always people move forward with the decision to buy a property.
Note, the seller can also back out of the deal if the reasons are within the agreement’s details. Contingencies are common in California contracts.
Buyer Review of Documents Contingency
To legally own a property in Beverly Hills or other regions around California, you need proper documentation. You have the responsibility to review the documents and any relevant information.
During this time, the buyer can request the contractually necessary documents. If the seller fails to provide the documents within five days, you may be able to cancel the contract.
The default inspection contingency gives you time to complete all inspections.
During the given time, you can hire independent inspectors to analyze the structural state of the home.
Your assessment may review the roof, foundation, structure, and other areas that you see fit. If the inspection results suggest significant problems, you can ask the seller to make repairs. Alternatively, you can request monetary credit for repairs or cancel the contract.
The cancellation of the contract or removal of contingency must be in writing.
Financing and Loan Contingencies
The financing contingency makes the offer contingent on the buyer securing finances for the property. It protects the buyer from legal ramifications if the deal fails to close due to the inability to secure financing.
The financing contingency features all predictable conditions and stipulations. It also includes the close dates of the transaction.
If you are selling a property, you should investigate the buyer’s ability to complete a transaction. The revised California purchase agreement 2022 authorizes the seller’s agent to contact the lender responsible for funding the transaction.
A loan contingency allows the buyer to purchase a property under the approval of the bank or mortgage broker. The contingency extends grace to the buyer. In addition, it gives you time to secure financing with less risk of losing your initial deposit.
Buying a dream home in Bel Air, is an exorbitant investment. It makes sense if you need multiple financing options.
Some people don’t have the full purchase amount. These scenarios make you rely on the lender’s approval. To be on the safe side, you should get pre-approval before a property search. Or better yet, opt for a pre-qualification letter.
If you buy the property on a cash basis, you don’t need a loan contingency but you will need to prove your ability to pay.
If you have a contingency to back out of a deal, make sure it is within the set time frame described in the contract. Different contingencies have varying time frames, and these deadlines may be negotiated.
Appraisal contingency and inspection contingency usually take 17 days, while a loan contingency can take 21 days. The default in the new California residential purchase agreement 2022 is 17 days. It is professional practice to double-check with your lender before committing to the length of your financing contingency.
If you are working with a real estate agent, they can negotiate the time frames for all contingencies based on your needs. Legally, the default time frames are all negotiable.
Although the contingencies safeguard the buyer, they end at a specific time. This may allow the seller to entertain other offers if your contract is canceled.
If you are buying a property, contingencies protect earnest money deposits. In competitive markets, buyers commonly waive contingencies to make their offer lucrative, but this practice is not recommended.
Before waiving any contingencies, consult a professional real estate attorney or real estate agent to understand the risks involved.
Preliminary Title Report Contingency
Before acquiring any property, evaluating the condition of title matters significantly, it can affect your terms of property ownership.
The decision to buy a property is contingent on the preliminary title report.
If the true state of the title differs from the title policy, the buyer should be able to pursue a claim. The preliminary report informs you of the conditions under which the title company can issue an insurance policy.
The report features title defects, liens, and encumbrances in coverage.
You need the report to identify any claims, restrictions, or interests of other people on the specific property. You don’t want to land in court for pending title issues related to a former owner.
Ascertain the preliminary report matches your expectations before closing the deal.
Common Interest Disclosure Contingency
In California, the law requires sellers to offer information on a common interest development. Related to condominiums or private communities, details like monthly due, total reserves, copies of minutes of homeowner’s association meetings need disclosure.
The information reveals the risks and incentives of acquiring the property.
If the details in the disclosure are unsatisfactory, you are open to cancel the contract.
Avoid Legal Issues by Reading California Residential Purchase Agreement 2022
Millions of dollars are lost every year through real estate fraud. The thought of losing your life savings on a fraudulent real estate deal is unbearable.
You can avoid scams and legal issues by reading California residential purchase agreement. The document equips you with knowledge of your legal rights as a buyer or seller.
You are better off cutting a real estate deal from the point of knowledge. The above are among the essential elements of the new revised California residential purchase agreement and joint escrow instructions 2022.
The document features more crucial information that protects your purchase process. Don’t let a mistake take your hard-earned money. Consult with Coldwell Banker Realty and avoid being blindsided by your purchase agreement.