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.

  1. 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.
  2. 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.”
  3. 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.
  4. 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.
  5. 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  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 CAR director and a former chair of its Standard Forms Committee.  He is the author of Real Estate the Ethical Way.  His email address is


Law book

The Summer 2014 issue of the Real Estate Bulletin, produced by the California Bureau of Real Estate, announces that the Bureau has finalized its authority to issue citations and assess fines without first going through a lengthy, and sometimes expensive, process of administrative hearings.  The details of the “cite and fine” program can be found in Business and Professions Code 10080.9 and Commissioner’s Regulations 2907 (effective July 1, 2014).  These codes not only set forth procedures for citing and fining errant real estate licensees, but also they provide for similar procedures to be applied to unlicensed persons who are doing things that require a license.

How will “cite and fine” work?  The Bulletin explains it thus:  “A citation or other formal action will be considered when a violation is found after an investigation, audit, or examination of a licensee’s records by CalBRE in response to a complaint, through random selection of a licensee for an office visit, or from completion of a routine audit.  Depending upon the nature (such as the level of seriousness and potential for harm) and type of the violation, the appropriate action will be determined.”

Read more


DualAgencyA recent California Appellate Court ruling is liable to have major long-term consequences for the real estate practice of dual agency in the Golden State.  In this case (Hiroshi Horiike v. Coldwell Banker, Second Appellate District, April 9, 2014), the dual agency was not a matter of a single person – real estate agent – representing both buyer and seller.  Rather, it was a case of different agents from different offices (of the same firm) representing the two parties. Read more


AdvertisingIt’s an old adage. “We know that half of advertising doesn’t work.  The problem is… We don’t know which half.”

Realtors® are fortunate in this regard.  They do know what advertising doesn’t work.  Or, if they don’t, at least they have the information available to them.

The information can be found in the annual National Association of Realtors® (NAR) Profile of Home Buyers and Sellers.  Unfortunately, the information about advertising effectiveness – or the lack thereof – is easily overlooked, as it is somewhat buried in a literal mountain of other data.  There are lots of gems in the Profile that are, similarly, easy to overlook.  Read more


According to the National Association of Realtors® 2013 Profile of Home Buyer and Sellers, 8% of first-time buyers borrowed from their 401(k) retirement accounts as a source of downpayment money.  It’s a good bet that a significant number of potential first-time buyers, as well as others, are not acquainted with how this works.  It’s also a good bet that, among those with the ability to use 401(k) funds, many are not familiar with the pros and cons of doing so.401K

In what follows I will make a brief attempt to address such issues.  This will certainly not be a complete treatise.  Those who are truly interested should contact a competent financial advisor.  Moreover, to find out if borrowing downpayment money from one’s 401(k) is feasible, it will also be necessary to discuss this with both your lender and your employer’s benefits administrator.

Not every 401(k) plan allows for borrowing.  (Just one reason to talk first with the plan administrator.)  Of those that do, typically the amount available for borrowing is the lesser of $50,000 or one-half the value of the account.  In some cases, plans allow for a larger amount to be borrowed if it is to be used for a downpayment on the borrower’s home. Read more


ArbitrationThe residential real estate business is quite competitive, and it is no surprise that from time to time disputes between agents rise to a level that calls for formal arbitration.  One of the most common real estate arbitration themes has to do with claims to a commission.  Generally this involves agents who have worked with the same buyer, and the issue is which agent is the one who has earned a commission by “…procuring a buyer which ultimately results in the creation of a sales or lease contract.” Read more


easementsWhen an easement over someone’s land is granted, it creates rights and duties for both parties.  These are not always obvious.  A recent California appellate decision (Dolnikov v. Ekizian, Second Appellate District, December 10, 2013) sheds light on the principles at work.

Before turning to the facts of the case, a word about the terminology.  Suppose I grant you an easement to use a path to and from the beach through my property.  (If only I actually owned such a property…)  In that case you would be known (to lawyers) as the owner of the dominant tenement.  You would be the dominant owner.  I would be the owner of the servient tenement.  I would be the servient owner.  This may sound a bit counter-intuitive, because one might think that the person who grants the easement is in the dominant position.  But, as law and tradition have it, the easement burdens the land affected.  Thus the beneficiary is the dominant owner. Read more

A Reverse Mortgage Requires No Payments

reversemortgageAmericans are healthier and living longer and as we reach retirement age, a challenge many face is how to stay in their homes. There is no doubt that housing expense is one of the largest monthly obligations for many. Homeowners often will comment that they will have to sell their homes when they retire but what they really want is to stay in their homes. The Reverse Mortgage is a financing tool that allows homeowners over 62 to keep their homes and stay in it without a mortgage payment; however, they must continue to pay their property taxes and homeowners insurance. It also allows a homeowner to tap equity in their homes to use for whatever they want. There are a couple of options with a Reverse Mortgage: the homeowner may either receive regular fixed monthly payments for life or a lump sum in cash or have access to a line of credit. The reverse mortgage can be customized to each borrower’s needs and provide a combination of fixed monthly income and an equity line. To qualify, all homeowners who are on title (or, in the case of a purchase, going on title) must be over 62 and the home must be a principal residence of one to four units. Condominiums, townhomes (Planned Unit Developments), single family residences and manufactured homes built after 1976 are all eligible properties. Reverse mortgage recipients must participate in counseling with a Housing and Urban Development-approved counseling agency prior to beginning the loan process. Your mortgage professional can provide you with a list of HUD approved counselors. Read more