The California residential purchase agreement is an 8 page document that outlines the details of the contract. The vast majority of the contract is boiler plate language. More specifically you’ll indicate the price you are offering, the amount of loan you are getting, how long of an escrow period you want etc. I’ll go over each of these points:
- Price – Sellers are usually most interested in this. You should review comparable sales in the area, average price per square foot etc. so you can come up with a price that makes sense. Give consideration to how long the property has been on the market; if there is competition from other buyers etc. Sellers are less likely to negotiate a lot on their price in the first few weeks after it was just listed – especially in the current market. If you really want a house and you know there are multiple offers it’s important to come in with a strong offer from the beginning because you may not get another chance – at times you won’t get a counter offer from the Seller – they’ll just accept the best one. Also, I’ve been a listing agent many times and since you don’t always know much about a Buyer or their motivation other than what the offer says Sellers may dismiss a lower offer in a competitive situation simply because they interpret it unfavorably. If a house you like seems to be overpriced, don’t hesitate to offer something more realistic – if they don’t accept your offer so what. You have nothing to lose!.
- Escrow Period – in California, when an offer is accepted by the Seller we “open escrow” An escrow company oversees the process, takes the deposit (it never sits with the seller or the brokers) coordinates signatures on loan docs etc. Escrow periods are typically 30, 45 or 60 days depending on what you negotiate with the Seller. Terms like escrow period can also be important to the Seller. Particularly in multiple offer situations, I’ll check with the listing agent to find out what the Seller’s preferences are. It’s important to confirm with your lender that they can get everything done on time if you’re agreeing to a 30 day escrow. An offer is considered accepted the day the Buyer and Seller have reached an agreement IN WRITING. If that happens on a Thursday for example, day one of escrow would be that Friday and you count out from there each calendar day. It is customary that the Buyer and Seller each pay their own escrow fees. Title fees are paid for by the Seller. Although negotiable, the listing agent/Seller often prefers to select the escrow and title company so they have some control over that. An escrow officer can at times make or break a deal based on their competency. Escrow fees vary from company to company and a good agent will negotiate on your behalf to make sure there are no garbage fees etc.
- Initial Deposit. Typically the initial deposit is 3% of the sales price and that deposit must be made into the escrow account within 3 BUSINESS days of acceptance.
- Loan Amount – you write into the offer if you are getting a loan and for what amount. 20% down/80% loans are common with single family homes. Buyers who don’t have a big down payment can go FHA which is more like 3.5% down but the property must be in good enough shape to qualify and Sellers may choose a Buyer with a larger down payment. Condos can only go FHA if the building is approved for FHA loans and many of them are not. Unfortunately, in a competitive market where Sellers are getting multiple offers, it’s very difficult to get them to choose an FHA Buyer when they have other options. Most income property will need a 20% down payment or more if you won’t occupy it. These requirements change all the time so you’ll need to verify all of this with your lender/mortgage broker.
- What’s included – per the contract everything that is attached like window treatments, light fixtures and built-in appliances stay with the house UNLESS the Seller specifically excludes such things in the contracts. Flat screen TV’s should be specifically addressed since they are subject to interpretation – better to clear that up front. Patio furniture, outside potted plants and appliances that are not built-in are NOT included unless you ask for them in the contract. Very important to be clear about this stuff in the contracts. Never accept the listing agent’s verbal communications as good enough.
- Home Warranty – it is common that Buyers will ask the Seller to pay for a 1 year home warranty – coverage is typically about $400 to $600 for an average house or more depending on what coverage you want.
- Termite – termite treatment is negotiable and as of the end of 2014, will no longer be incorporated into the purchase agreement. A Buyer can elect to have a termite inspection while having their other inspections and request that the Seller have termite work done prior to close of escrow of negotiate a credit.
- Retrofit Work – Los Angeles (and most other cities in the area) requires that retrofit work be done prior to a change in ownership. Retrofit work includes the installation of smoke an carbon monoxide detectors, low flow toilets, automatic gas shut-off valves, water heater strapping and in some cases, sliding glass doors must have hazard glazing. It is customary that the Seller pays for these items.
- Contingencies – real estate is usually purchased with contingencies in place which are designed to protect the Buyer. The main contingencies are the inspection, loan and appraisal contingency. Basically you are purchasing the property for a certain price and terms SUBJECT TO your inspections and subject to getting full loan approval and the property appraising for the amount you agreed to buy it for. The standard time for those contingencies is 17 days but like most things in real estate deals – these points are all negotiable.
If you are paying all cash – you would obviously not have a loan contingency and some buyers will not care about getting it appraised (although you can still have that contingency in place if you desire). Fewer contingencies are why Sellers love dealing with cash Buyers.
Physical Inspection – You have the right to thoroughly inspect the property – you’d be FOOLISH not to. Depending on the situation, some Buyers will offer to shorten this contingency a bit to make their offer more appealing – this contingency is often the most difficult to get through. When there are multiple offers on a property certain Buyers will remove all contingencies completely or dramatically shorten them in hopes of getting an accepted offer – this is not a good idea for most buyers.
A very important thing to remember with real estate contracts – everything MUST BE IN WRITING and signed by all parties (all buyers and all sellers) – no verbal agreements, no assumptions. Get every detail in writing. That’s how you protect yourself!
Multiple Offer Situations – Buyers hate having to compete with other Buyers but its very common in this market. Every situation is different – sometimes Sellers will review and respond to offers as they come in and other times they tell you in advance they’ll be reviewing offers on a certain date. As an agent, we do our best to feel out the listing agent to see how many offers they have etc. before we write so we can be as competitive as possible. Depending on the feedback, we may submit and offer right away in an attempt to get an accepted offer before other offers come in. In other cases, we may hold off (especially when they are reviewing offers on a certain date) and submit our offer just before the deadline hoping to avoid having the offer shopped. I always do my best to get as much information from the listing agent as possible and proceed accordingly.
Contact Kevin at (310) 200-4916 or email email@example.com