Writing the offer to purchase

If you have purchased a home before in the last 10 years, you know there are quite a few forms to fill out and sign. If this is your first time, brace yourself. This is an intense process and it would serve you well to review these documents before you are facing the decision to sign. Depending on your personality type, you may spend 1 hour to 3 hours or more writing up this contract. An agent that is looking out for YOUR interest, will allocate plenty of time to go over these documents with you. After all, you are making a purchase that will impact you for the rest of your life. 

I have made every effort to link as many of the forms you will be signing so you have the opportunity to become familiar with them, ideally way before you find a house. Print them out, highlight areas of question and discuss them with your agent. I of course am happy to discuss any portion of this agreement with you, I have written hundreds and hundreds of over the past decades. I know them inside and out.

The Purchase Contract and addendums

In California, buyers and sellers reach a legally binding agreement upon full execution, delivery AND acceptance of the California Real Estate Purchase Agreement and Joint Escrow Instructions and any pertinent addendums. If you click on the link provided, you will go to the latest version of the main contract which was updated Dec. 2021. It totals 16 pages, very tightly packed content.. Zero fluff. That is before a few mandatory disclosure addendums, which we will review next.

In addition to the Residential Purchase Agreement (RPA as it is known in the industry), there are addendums and disclosures which can total to over 100 pages at times. Here is a list of the most common addendums to the purchase contract, and why you need them.

Disclosure Regarding Real Estate Agency Relationship. This form is required when you are working with a real estate agent so that it is clearly understood who the agent represents and what duties and obligations the agent has with their clients.

Buyer’s Inspection Election– This form is an advisory to the buyer to do their own due diligence regarding all aspects of the property. It lists a number of inspections that are recommended such as physical inspection, termite inspection, hazards inspection and many others. There are a total of 37 types of inspections that the buyer is advised to make, some of which may or may not be applicable to the type of property being purchased. It is a disclosure of what the responsibility of the agents and seller is regarding disclosing the condition of the property. The form also lists what the seller and agents are NOT responsible for.

Wire Fraud Advisory – This form warns the buyer, and seller as well, of the need to exercise caution when wiring funds to escrow/title companies. There are buyers and sellers every day practically, who lost tens or hundreds of thousands of dollars due to clever scams out there to take their money. Good form to read and heed the advice therein.

Fair Housing and Discrimination Advisory (C.A.R. Form FHDA) – This form goes over the legal requirements of Fair Housing in California as well as mentions Federal requirements as well. It reviews in detail what protected classes are, who is required to comply with the law and the ramification of non-compliance or violation of the law.

California Consumer Privacy Act Advisory – This form discloses the privacy act obligations of Real Estate brokers when dealing with personal identifying information from consumers. 

Statewide Buyer and Seller Advisory (C.A.R. Form SBSA)

This form covers a variety of different disclosures regarding conditions that may be present in, on, and around the property. It warns buyers of this such as mold, geological hazards, environmental hazards, and much more. 

The form identifies the obligations of seller and buyer regarding disclosure and verification of condition of the property. It is a 14-page long form, you may want to definitely review this form to avoid any misunderstandings that commonly happen such as “I thought the house included xxx” or “I had no idea there could be scorpions in the area, I should have been told”.. This is the form that tells you what you are responsible for investigating and what the seller should disclose to you.

Counter Offers (C.A.R. Forms, SCO, BCO, and SMCO)

As of this writing, if you are really fortunate you will get a seller counter offer. WHere you and the seller can negotiate price and terms “mano a mano”. Just buyer and seller. Unfortunately, the reality is that you may not even get to a counter offer. It is so competitive out there right now that many offers are not even considered/reviewed as they are just one of the dozens and dozens of offers received.  The more likely scenario is that you will receive what is called a seller multiple counter offer. (C.A.R. form SMCO). This will go out to all, or maybe just a chosen few potential buyers with price/terms that the seller will accept. 

It gets a little tricky from here on out with these multiple counter offers and the many different ways to handle them. This is reason number 1,345 why you absolutely need to have a highly experienced, trustworthy REALTOR®  on your side. There are many agents out there representing buyers who lose out on homes because they simply do not know how to deal with things such as escalation clauses, acceptance and delivery requirements of counteroffers, etc. We are playing “real estate super bowl” out here right now. No room for error if you want to win the prize: Your Next House.

There is a multitude of other forms and addendums that may be applicable based on the type of house you are buying. The list is extensive and I will not be going over that in this guide. I am sure the agent you choose to represent you will inform you on what other forms are pertinent and necessary and will provide you with such forms.

Negotiating price and terms.

As you get ready to lay out the terms of your offer to purchase, definitely seek your REALTOR®’s advice. The market is super competitive right now and though you may think you can come in and do the typical “offer low and see what they come back with” make no mistake about it.. Doing this now will not get you anywhere. No doubt you have heard/read the news of the bidding wars so no need to reiterate it.

Take into consideration that just making the highest offer may not be enough. Nowadays buyers are offering to do things like paying the seller’s closing costs, even the Real Estate agents’ commission! Buyers also offer to let the seller rent back the property for up to 60 days which is the maximum lenders will allow the buyer to move into the property. There are many other incentives that the buyer can offer a seller to “sweeten the deal” for them. A REALTOR® who does this day in and day out as I do, will be able to give you guidance on how to approach this. 

Three MUST KNOW elements of a purchase contract for real estate in California.

1. There is no three-day right of rescission. Once you and the seller have accepted and agreed on a price and terms, that contract is legally binding. You can’t just walk away from it without repercussions.

    

2. There are strict timelines and contingencies you must comply with or you are out of contract. Review that contract carefully with your REALTOR® so you understand fully what your obligations are. Nowadays, sellers and listing agents are looking for a reason to cancel your contract so they can take the next higher offer. Don’t give them a reason to do it.

    

3. If it is not in writing, it doesn’t exist. In spite of the hundred-plus pages that buyers and sellers have to sign and review, there is still the “I thought that.. XXX”. Thinking that, or expecting that, or “ but that’s how they do it in Georgia ”, or “my uncle said that xxx” has no binding impact on what is in black and white. Zero. In fact, the reason we have a purchase agreement that is now close to a hundred pages altogether is because of these “unarticulated expectations and misunderstandings” that led to hundreds of lawsuits. After each costly settlement, a new page or a few were added. It is probably not over. Just keep in mind that if it is not written into the contract and both parties agreed to it, you won’t get it.