Important Updates to the California Residential Purchase Agreement
For the first time since 2010, in October, 2014 the California Association of Realtors issues a complete make-over of the standard Residential Purchase Agreement (RPA), the standard residential purchase agreement used in the overwhelming majority of California home sales. While use of the RPA is not required by any law, it remains the standard document used by real estate agents to negotiate residential real estate transactions in California. Some of the more significant changes to the document for the principals in a sale transaction can be found in these following areas.
Lender limits on buyer credits. Combined with new federal regulations affecting disclosure requirement for lenders, which come into effect on August 1, 2015, new contract provisions may lengthen the time necessary to obtain and close on funding for a purchase. Among other things, buyers who reduce the price of a home by seeking credits will have to disclose these credits to their lender. Depending upon the lender, the buyer may face consequences for taking these credits.
Loan contingency. Under the new contract provisions (which are under review and may be changed), the pre-designated period for an appraisal contingency is 17 days, while the loan contingency is at 21 days. The result is that after the appraisal contingency is removed, failure to obtain a loan because the property does not appraise will not permit buyers to cancel without losing their deposit. The buyer should attempt to get these contingencies to be the same length.
Termite provisions. This one is of particular importance for real estate agent in Southern California. The termite report was previously addressed in a separate addendum that typically resulted in the seller agreeing up front to pay for “section 1” repairs. That addendum has been eliminated so that now the pest report is treated as any other inspection – the buyer has to request repairs and the seller may or may not agree. The best way to address this issue is for the seller to obtain the termite report up front, before receiving offers, in order to know exactly what costs will be in play during negotiations. That way the seller can build repair costs into the price negotiations.
Assignment of the RPA. Contracts in California are typically assignable. The revised RPA gives the seller the right to reasonably approve assignment of the contract. Investment buyers need to take this fact into account when planning purchases
Representative parties. There is a new addendum for parties buying or selling in a representative capacity, whether via a trust or an entity, that will set forth the parties and the appropriate signers on behalf of those parties once, and up front in the transaction. This should eliminate signing problems. If you are buying or selling through an entity, remember that the title company is going to ask for the underlying entity documents before closing, so prepare those beforehand to avoid holding up the close of escrow.
For more information on how the Residential Purchase Agreement has changed, contact an experienced real estate attorney.