Most offers to purchase a resale residential property in California are done on a Residential Purchase Agreement & Joint Escrow Instructions (RPA-CA) which is a standard form developed by the California Association of Realtors. This document has been amended over the years to reflect real estate issues, and give a buyer a great deal of protection.
When first working with new Clients, I like to take some time and discuss the contract and the best way to put them into what I like to call a position of power. A good understanding of how to write a successful purchase agreement goes a long way to getting the price and home you want. I will usually prepare a sample contract for them to review early in the process, the last thing you want to do is try to explain the contract while you are making an offer.
In general, the contract outlines the purchase price, terms on a loan, length of the escrow period, what is included in the sale, and what I call lots of “what ifs”. Since it is a legal contact much of the document deals with items that usually don’t happen, but a full understanding of those clauses will allow your REALTOR® to negociate you through the purchase process.
The default time frame in the RPA allows the Buyer to have 17 days from acceptance to do all the due diligence of making sure the property is acceptable. This would include getting an appraisal, having a home inspection, getting a termite report, reviewing HOA documents and Preliminary Title, and any other reports that may be necessary to determine present condition.
The Seller is obligated to give to the Buyer certain disclosures including the Transfer Disclosure Statement (TDS) indicating what they know the property includes and what may affect the property. The home is considered to be offered in “Present Condition” which used to be called “As Is Condition” The Buyer has the right to ask the Seller for certain repairs within the inspection period, but the Seller is not obligated to do so. The Buyer can choose to cancel after the Seller’s response of the repair request and get their initial “Good Faith” Deposit back. The Buyer and Seller can also choose to compromise.
Once the Buyer is satisfied with the condition of the property and all disclosures and is assured that his loan and appraisal is in place he or she can remove those contingencies. Once they have been removed the initial deposit is a risk if the Buyer is in default of the contract.
Here are 5 General Tips that I give my Clients when putting together a successful purchase agreement:
- California Law states that a buyer of residential property can put up to 3% deposit on an offer to purchase a home. By making a substantial deposit you are sending a message to the Seller that you are serious about purchasing. Remember, the money will not be a risk until you remove all contingencies. I have been at a Seller’s table more than once with two competing offers with the higher deposit winning out.
- If you want to make an low offer you must load the gun. What I mean by that is keep the offer as clean as possible with as short of an escrow as you can. This may make it attractive enough to a Seller to accept much less than they really want.
- Set a specific date for close of escrow. Many times an agent will just say 30 days from acceptance. It is much better to pick a date for close of escrow that avoids the end of the month (difficult) and gives you the best opportunity for moving into the Property. This is the type of thinking that an experienced agent will advice you on to make your move as smooth as possible.
- Always attach a letter of loan approval with your offer. If you want to be in a position of power and get your best deal, show the Seller that you are qualified for the loan amount. Things have changed a great deal in the financing area and the Seller wants to know you can buy. Work with a lender early to check your credit and know how much loan you can qualify for.
- Ask the Seller to provide a Seller’s Additional Disclosure for your review. As mentioned above the Seller is obligated to provide a Transfer Disclosure Statement by law. The Seller’s Additional Disclosure goes much deeper and asks the Seller many questions that a Buyer would want to know. You have to ask for this as it is not required by law.
Okay, so these are just a few tips that I have for you on doing a successful purchase agreement. Working with this document is really an art and a full understanding by your REALTOR® is a good thing. Prepared properly, the RPA-CA can give you lots of options and protection and offer dispute resolution. It is beyond the scope of this general post to discuss specifics which are really defined by the individual Buyer needs and goals.
The above tips may not be the best for you individually and this article is written in consideration of California Real Estate Law. Consult a professional REALTOR® for your specific needs.
If you are reading this outside of California you should consult a local REALTOR® in that State.
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Jeff great tips. One thing I would add is to make sure the approval letter that you get is from a reputable lender. There are many lenders out there that can actually hurt your offer not help it.
Jeff great tips. One thing I would add is to make sure the approval letter that you get is from a reputable lender. There are many lenders out there that can actually hurt your offer not help it.
Todd, you are very correct that before a Buyer can remove his loan contingency, the loan must be approved. A loan prequalification is not good enough in this market and can put the Buyer’s deposit at risk!
Todd, you are very correct that before a Buyer can remove his loan contingency, the loan must be approved. A loan prequalification is not good enough in this market and can put the Buyer’s deposit at risk!
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