California Residential Purchase Agreement Undergoes Thorough Revision

Written by  on Monday, 16 June 2014 12:12 pm

California’s standard Residential Purchase Agreement (RPA), produced by the California Association of REALTORS® (CAR) is undergoing a major revamping. While the changes being made do not represent a radical transformation or restructuring of the nature of the agreement, there are still many, many changes. Some of them are only slight alterations in wording; others are “tweaks” on the way certain issues are handled; and a few will constitute substantive changes in transactional practice.

It is often said that the armed forces of nations are constantly preparing to fight the last war in which they were engaged. Something of that goes on in the revision of standard contracts as well. We try to make revisions that will accommodate and account for the peculiarities and problems encountered in the most recent market. But, sometimes, as markets inevitably change, those recent issues and problems just fade away. To be replaced by new ones, no doubt.

In no particular order, then, we review some of the more noticeable changes to the California Residential Purchase Agreement.

1. Added to the Financing section is a paragraph entitled Lender Limits on Buyer Credits. It reads: “Any credit to Buyer, from any source, for closing or other costs that is agreed to by the Parties (“Contractual Credit”) shall be disclosed to Buyer’s lender. If the total credit allowed by Buyer’s lender (“Lender Allowable Credit”) is less than the Contractual Credit, then (i) the Contractual Credit shall be reduced to the Lender Allowable Credit, and (ii) in the absence of a separate written agreement between the Parties, there shall be no automatic adjustment to the purchase price to make up for the difference between the Contractual Credit and the Lender Allowable Credit.”

This is to say, a buyer who offers a big price, but then seeks to reduce it by asking for big credits, had better be prepared to deal with the lender’s disallowance of those credits.

2. Another addition to the RPA is a section entitled “Representative Capacity.” It deals with parties who are signing “in a representative capacity and not for him/herself as an individual.” Such parties must complete a specified addendum and must deliver within three days after acceptance of the contract “evidence of authority to act in that capacity.” Failure to deliver such evidence triggers a Seller’s right to cancel.

3. Loan contingency is not automatically tied to appraisal. “If there is no appraisal contingency or the appraisal contingency has been waived or removed, then failure of the Property to appraise at the purchase price does not entitle Buyer to exercise the cancellation right pursuant to the loan contingency if Buyer is otherwise qualified for the specified loan.”

4. Added to the section detailing what items are included and excluded from the sale is a section for Leased or Liened Items and Systems. The need for this was occasioned primarily by the increasing presence of solar systems that come with a long-term lease. The Buyer’s approval of and ability to assume the lease is made a contingency of the purchase.

5. A large Scope of Duty section has been added to the purchase agreement. It has nothing to do with contractual terms between buyer and seller. It is a CYA section for the protection of brokers. It details the many things that the brokers are not responsible for and that they are not required to do. The entire section was taken from an existing buyer and seller advisory, which, unfortunately, is not always used by agents.

6. A major change that will particularly be noticed by southern California agents is the removal of the termite report from the list of inspections whose cost is allocated, by negotiation, either to the buyer or the seller. Additionally, a widely-used addendum (WPA) — indicating who will pay for termite repairs — is no longer referenced in the contract.

This is not to say that buyers can’t get termite reports and request that repairs be made. They can, just as they can with respect to roofs, windows, etc. The point is that termite inspections will now be treated the same as any other inspection a buyer might want to make. The same with the request to make repairs. Termite work is no longer, so to speak, enshrined in the contract, and there is no implication that sellers must agree to bear the entire cost of termite repairs.

The revised purchase agreement is in its fourth and final draft form. CAR members can view it on the Association Web Site at www.car.org. Only a short period remains for comments to be submitted. In August, CAR legal staff members will begin teaching courses on the new document. It will be released for use in November.

Bob Hunt is a director of the California Association of Realtors®. He is the author of Real Estate the Ethical Way.