Anticipated Revisions to the C.A.R. Residential Purchase Agreement
By David Hamerslough
December 13, 2022
C.A.R. typically revises its forms, including the Residential Purchase Agreement
(“ RPA”), in June and December. This article will discuss some of the anticipated revisions that are expected to be made to the RPA this month. At times, C.A.R. makes further revisions before a final release of any new form. Therefore, it is important to make sure that the revisions discussed in this article have been incorporated into the RPA without any additional changes.
The following revisions to the three-page grid are proposed:
- The formatting and content of ¶¶ 3(E)(1) and (2). The language “not to exceed ____%” has been separated from the language where the loan amount is to be filled in. This formatting change is intended to distinguish the interest rate cap provision from the provision relating to the loan amount.
- The language regarding the points to be paid to obtain the loan rate indicated in these paragraphs.
The prior version of the RPA contained the following language:
- “Buyer to pay zero points or up to ____% of the loan amount.”
The proposed language is
- “Buyer to pay up to ____ points to obtain the rate above.”
Under the prior language, if no number was inserted before the percentage mark, the default option of “zero” meant that the buyer was not willing to pay any points. Assuming there was a loan contingency, this default language allowed some buyers to cancel the contract if they were required to pay any points to obtain their loan. The proposed revision will eliminate that logical option; now buyers must specify the maximum number of points that they will agree to pay in order to obtain the loan rate that has been designated. If the buyer does not want to pay points, a “0” or the word “zero” must be inserted in the blank line. Since a blank line in the RPA is NOT defined as meaning “zero,” leaving the line blank creates a potential ambiguity as to what the buyer is willing to do.
Please remember that the loan amount, the interest rate cap, and the number of points to be paid to obtain that loan are part of the terms and conditions that comprise the buyer’s “Stated Financing” (¶ 6(C)). A number of potential issues may arise where there is a loan contingency and some or all of these terms have not been completely filled in. These include but are not limited to (1) whether there is an enforceable contract, (2) if there is a contract, what cancellation rights, if any, does the buyer have based on those terms that either were or were not filled in, (3) whether the buyer has acted in good faith in their efforts to obtain the “Stated Financing.”
- The RPA now has a new Paragraph G(3), “Seller Agrees To Pay Buyer’s Broker.” A box must be checked in the grid to include this provision in the contract. My understanding is that this provision has been added, in part, in anticipation of a long-awaited resolution of the commission disclosure issues related to brokerage compensation that have been ongoing between the Justice Department and organized real estate. Those issues have, in turn, prompted a revisiting of buyer representation/compensation agreements.
This new provision is only used if (1) there is a buyer-broker compensation agreement and (2) the seller is going to pay some or all of the compensation to be paid to the buyer’s broker. It also requires use of a new C.A.R. form, Seller Payment for Buyer’s Broker (SPBB).
NOTE: The SPBB form and the check box in G(3) are not needed if the seller/listing agent are only going to pay the amount of compensation offered through the MLS or if the Cooperating Broker Compensation Agreement (“CBC”) is used.
The SPBB is being released at the same time as the revised RPA. Given that ¶ G(3) states that the seller is agreeing to contribute to the payment to the buyer’s broker “as an ‘inducement’” for the buyer to enter into the contract, this language suggests that the SPBB should be signed before the offer is made, as is true with the CBC.
C.A.R. has added language to ¶ 18(A) to the RPA to specify that a seller shall be entitled to obtain a copy of the written compensation agreement between the buyer and buyer’s broker if the seller agrees to pay all or any portion of the buyer’s broker’s compensation, but there is no specified time period to do so. The best practice is for the buyer representation/compensation agreement to be provided with the SPBB so that the seller has full disclosure of the terms of the buyer compensation agreement when the seller is asked to sign the SPBB.
Finally, the SPBB characterizes the seller’s payment of the buyer’s broker’s compensation as a “contribution to transaction costs.” This may cause some lenders to include the payment in the total of allowable credits; check with the lender before any agreement is reached on this subject.
- Paragraph M(3) of the grid regarding the issue of possession and occupancy of the property by tenants or others. A box has now been included that can be checked if the Tenant-Occupied Property Addendum (TOPA) is attached to the offer. More importantly, language has been added that requires the seller to disclose to the buyer and attach a TOPA in a counter offer if the property is occupied by tenants or others and the TOPA was not attached to the offer. This appears to be an attempt to make sure that the TOPA is used where the property is occupied, irrespective of whether those tenants or others will remain in possession.
Paragraph 7(A) has been revised in conjunction with this language. This revision specifies that if the buyer intends to occupy the property as a primary or secondary residence, then the unit that the buyer intends to occupy shall be vacant at the time possession is delivered to the buyer unless otherwise agreed, such as in the TOPA.
Please remember that ¶ 1 of the TOPA takes the default position that existing tenants will remain with the property on close and that if the intention is for the tenant to vacate, then ¶ 1(B) will need to be checked. Furthermore, the TOPA provides that the buyer does not have the right to hold the seller in breach for failing to remove the tenant if the seller is unable to deliver the property vacant after using their best efforts to do so. In that circumstance, the buyer is given the option to either cancel the contract or accept the property with tenants in possession. The buyer’s sole remedy in that situation is a return of any deposits and reasonable out-of-pocket expenses for inspection reports and appraisal fees. Please refer to the TOPA for further terms and conditions that are part of that agreement.
NOTE: Because the TOPA may limit the buyer’s rights to seek damages if the tenant cannot be removed in a timely fashion, the best practice is for buyer’s agents to urge buyers to consult with a qualified California real estate attorney and/or a local landlord-tenant attorney before signing the TOPA so that buyers can be properly advised of potential issues with the TOPA.
Some of the other revisions to the C.A.R. RPA include the following:
- Paragraph 5(A)(3) now contains language regarding the retention of the buyer’s deposit(s) in the event of the buyer’s default. My understanding is that this language was added to address the issues raised by ¶ 14(C)(2), where a buyer fails to make any contractually required deposit. Unfortunately, the new language is only an advisory and does not explain or alter the rights and remedies of the parties. The new language recommends that the buyer and seller consult a Qualified California Real Estate Attorney “regarding possible liability and remedies if Buyer fails to deliver the Deposit.” While this is certainly good advice, it doesn’t change the existing rights and remedies provided for in ¶ 14(C)(2), nor does it explain any of the options that the seller has when a buyer fails to make any of their contractually required deposits. Earlier this year, I wrote an article regarding these issues and potential language that might be added by a seller at the time of contract formation to address them.
- Paragraph 9(B)(2), “Items Included In Sale.” This paragraph now specifies that any associated hardware and rods are included with any window and door screens, awnings, and shutters and window coverings that are part of the sale.
- Paragraph 11(M), “Solar Systems.” This paragraph requires that if the property has any solar panels or solar power systems, the seller must deliver, within the time specified in ¶ 3(M)(1), “all known information about the solar panels or solar system.” I am hoping that C.A.R. further revises this language to include relevant documentation as well as information – check the final version of the RPA to see if that clarification was made.
C.A.R. has also developed a specific form (“SOLAR”) for the seller to use to provide information and documentation regarding the solar systems. It is an advisory and questionnaire. The form contains useful information but, unfortunately, fails to ask the seller to specify whether they have experienced any issues, conditions, and/or problems with the use, leasing, or ownership of the solar systems. While that information may be required in other disclosure documents, it would have been convenient if C.A.R. had included a specific place in this form for the seller to disclose past or present problems regarding the solar systems.
In January 2023, I will discuss additional revisions to the C.A.R. RPA. By that time, the new form will have been released, and I will be able to confirm whether the revisions discussed in this article have been adopted without any additional changes. Future articles will also discuss revisions to the PRDS purchase contract and new PRDS forms.