Additional Revisions To The C.A.R. Residential Purchase Agreement
By David Hamerslough
January 17, 2023
Last month’s article discussed some of the anticipated revisions that C.A.R. would be making to its Residential Purchase Agreement (“RPA”) in December of 2022. This month’s article will complete the discussion of those revisions.
As promised, I compared the final revisions made by C.A.R. in the RPA released in late December to those anticipated revisions I discussed in last month’s article. Let’s look at those final revisions (which were for the most part grammatical and not substantive) first.
The Language In New Paragraph G(3) Of The Grid And The New Seller Payment for Buyer’s Broker (“SPBB”) Form Was Revised
My analysis of this paragraph in last month’s article remains the same. Before discussing the revised language, it is important to re-emphasize several points. First, the box must still be checked in the grid to include this provision in the RPA, but this box should only be checked if (1) there is a buyer-broker compensation agreement and (2) the seller is going to pay some or all of the compensation to the buyer’s broker. The box should not be checked to confirm any offer of compensation in the MLS or to attempt to renegotiate that offer.
The revised language now states “Seller agrees to pay the obligation of Buyer to compensate Buyer’s Broker under a separate agreement (C.A.R. Form SPBB attached). Seller’s Broker’s offer, if any, to compensate Buyer’s Broker is unaffected unless Otherwise Agreed.”
This revision requires that the SPBB be attached rather than simply referring to that form for further information. It also confirms that any offer of compensation made by the seller’s broker is unaffected unless “Otherwise Agreed” (a term defined in ¶ 25(O)). The definition requires an agreement signed by both parties and delivered to each party. One issue to consider is that brokers are not “Parties” to the RPA, and therefore any modification of any offer of compensation will not only require the Parties’ signatures but also those of the brokers.
The new revision eliminates language indicating that the seller’s agreement to compensate the buyer’s broker was “an inducement for Buyer to enter into” the RPA. While that omitted language suggested that the SPBB be signed before the offer is made, the revised language indicating that the SPBB is attached to the offer now clarifies this timing issue.
In the revised SPBB, the language characterizing the seller’s payment of the buyer’s broker’s compensation as a “contribution to transaction costs” has been eliminated. Hopefully, this will address any potential for a lender to include the payment in the total of allowable credits. Checking with the lender before any agreement is reached on this subject still may be a better practice.
Three new paragraphs have been added to the SPBB. Paragraphs 1 and 2 now spell out the amount of any compensation the buyer is paying to the buyer’s broker pursuant to a buyer representation/compensation agreement and the amount of compensation the buyer’s broker is to receive from the seller’s broker pursuant to the offer of compensation in the MLS.
Paragraph 3 now addresses the amount of compensation the seller is going to pay the buyer’s broker. It also underscores that the amount to be paid (whether by a percentage of the purchase price or a fixed amount) should not be greater than the amount of compensation the buyer is already obligated to pay the buyer’s broker as specified in ¶ 1 less the applicable percentage or dollar amount specified in ¶ 2.
Paragraph 4 of the revised SPBB confirms, as in ¶ 18(A) of the RPA, the authorization by the buyer to deliver to the seller a copy of the buyer compensation agreement. Finally, a new ¶ 5 addresses how these issues are to be handled in the event of a dual agency, including where the listing agreement provides for a reduced amount of compensation where there is dual agency.
The Language In Paragraph M(3) Of The Grid Was Revised
The prior language was “occupied units by tenants or others.” The new language reads “occupied units by tenants or anyone other than the seller.” This new language clarifies that the provisions of ¶ M(3) apply to occupancy of the property by anyone other than the seller.
Where the seller is currently in possession and is going to remain in possession following close of escrow, either the Seller License To Remain In Possession Addendum (“SIP”) or the Residential Lease After Sale (“RLAS”) form needs to be used, depending on the length of that possession/occupancy. Otherwise, for anyone else remaining in possession, the TOPA form needs to be used, and my comments from my last article on that subject remain the same.
Paragraph 11(M), “Solar Systems”
The language of this paragraph was not revised. It still requires the seller to Deliver “all known information” about the solar panels or solar system. C.AR. did not add language indicating that the documentation regarding those systems also needs to be provided. This is probably because ¶ 9(B)(6) requires the seller to provide all such documentation. Unfortunately, ¶ 11 only refers to ¶ 3(N)(1) of the grid. This paragraph addresses the timing of the Delivery of the documentation. Please make sure that your clients provide not only all information but also the documentation required on this subject pursuant to these provisions of the RPA.
The following are the other revisions to the RPA that were not discussed in my last article.
Paragraph 12, “Buyer’s Investigation Of Property And Matters Affecting Property”
Paragraph 12(B) has been revised. Paragraph 12(B)(3) has been eliminated. In the June 2022 RPA, the buyer’s review of reports, disclosures, or information prepared by or for the seller and Delivered to the buyer pursuant to ¶¶ 3, 10, 11, and 14(A) was part of the buyer’s investigation of the property and therefore, arguably, part of the buyer’s investigation contingency. C.A.R. has now clarified that a buyer’s review of seller documents is a stand-alone contingency specified in the grid in ¶ 3(L)(4) and not part of the general investigation contingency.
The other revision to ¶ 12 is found in subsection (B)(2). Language has been added to clarify that the buyer’s investigation of the property pursuant to ¶ 12 includes all other Buyer Investigations not specified previously in ¶ 12(B) “other than those that are specified as separate contingencies. These other Buyer Investigations include but are not limited to an investigation of the availability and cost of general homeowners’ insurance, flood insurance, and fire insurance.”
This revision clarifies that (1) investigating the availability and cost of homeowners’, flood, and fire insurance falls under the general investigation contingency and (2) the “separate contingencies” referred to in the revised language are those set forth in the grid in ¶¶ 3(L)(4) (review of seller documents), 3(L) (5) (preliminary “title” report), 3(L) (6) (common-interest disclosures), 3(L)(7) (review of leased or liened items), and 3(L)(8) (sale of buyer’s property). These stand-alone contingencies are to be waived or removed separately from waiving any general investigation contingency.
Paragraph 23, “Assignment/Nomination”
The term “nominee” and concepts related to that term are now included in the paragraph discussing assignment. The intent is for a nominee to be treated the same as an assignee and for the same procedures, requirements, and terms to be imposed upon the nominee. The intent to treat the status of either an assignee or a nominee as one and the same is contained in the last sentence of this paragraph, which states “Any nomination by Buyer shall be subject to the same procedures, requirements, and terms as an assignment as specified in this paragraph.”
New language has also been included requiring the parties to “provide any assignment agreement to Escrow Holder within one Day after the assignment.”
The rationale for this revision is contained in a quick guide that C.A.R. produced on this subject. Please read it for further details. It states, in part, that these revisions were made to address a practice of agents using the term “nominee” in a contract without understanding the potential implications of that term vs. an assignee. The quick guide explains some of these differences and some of the potential impacts that these terms may have on the rights and obligations of all the parties to the transaction. The guide concludes by recommending that if the parties intend that the term “nominee” have a different meaning than the term “assignee” as now spelled out in the revised RPA, then the nominee language should be prepared by a qualified California real estate attorney.
Paragraph 25(L), “Electronic Copy” or “Electronic Signature”
Language has now been added stating “Unless Otherwise Agreed, Buyer and Seller agree to the use of electronic signatures.” Electronic signatures have become the default practice in recent years; this language confirms that practice and requires a separate agreement in writing signed by both parties and delivered to those parties if this practice is to be deviated from.
Paragraph 31(C), “Preservation of Actions”
This paragraph still provides that the filing of certain court actions do not constitute a waiver or violation of the mediation and arbitration provisions. These actions included filing a lawsuit to preserve the statute of limitations or to record a lis pendens.
The revision now requires that the filing party (the lawyer representing the buyer or seller) also request that the court stay the litigation pending any applicable mediation or arbitration proceeding. This request must be made concurrently with or immediately after the filing of the court action.
While this is not within the normal realm of a real estate licensee’s activities, it does present a potential “gotcha” for any lawyer representing a buyer or seller. Unfortunately, it adds another requirement at an additional expense, and the failure to meet that requirement may have consequences, including the inability to recover attorneys’ fees or a waiver of mediation or arbitration. Including this language underscores the importance of referring buyers and sellers to qualified California real estate attorneys for guidance when disputes arise.
Revisions To The “Real Estate Brokers” Section
New language in this section now requires each broker/agent to provide their mailing and email addresses. In addition, revisions now provide for the respective brokers/agents to check all forms of electronic delivery that are to be utilized (including email or texting to the phone number that is part of the new information that needs to be provided) or checking a box indicating that some alternate electronic address will be accepted.