RESIDENTIAL PURCHASE AGREEMENT AND JOINT ESCROW INSTRUCTIONS

RESIDENTIAL PURCHASE AGREEMENT AND JOINT ESCROW INSTRUCTIONS

This section highlights provisions, which comprise a residential purchase agreement using the standard C.A.R.
form, Residential Purchase Agreement and Joint Escrow Instructions – RPA CA. When completed with the
terms and other information relative to the buyer’s attempt to purchase the property, it is an offer. When the
seller [or seller or buyer after counter offer(s)] executes the documents and communicates unqualified
acceptance, it is a contract. The contract provides joint escrow instructions. Many escrow companies will
generate supplemental or other general provisions, which buyer and seller agree to execute. In this discussion,
we refer to the document as the offer, contract or agreement.

The contract will state that time is of the essence and that the time for performance can be extended or any other
provision of the offer can be modified only by a writing signed by both buyer and seller. In general the buyer
has 3 days to get the deposit to escrow, 7 days to complete loan applications and provide verification of funds
and 17 days to inspect and investigate. The seller typically has 7 days to provide the buyer all required
disclosures. Any removal of contingencies must be in writing, typically using the C.A.R. standard form
Contingency Removal – CR. If one party does not perform, the other party has the option to provide a “Notice
To Perform” and typically allow 24 hours for performance to occur. However, before initiating a cancellation of
the agreement and escrow the “Notice To Perform” is typically required. Unilateral cancellation of the
agreement and escrow is possible; however, the disposition of funds on deposit must be bilateral.

The California Association of Realtors offers a comprehensive user guide to the Residential Purchase
Agreement and Joint Escrow Instructions – RPA CA that is highly recommended for all licensees using these
forms.

Date and Place of Buyer’s Offer

This is the date and place the deposit receipt is signed by the (prospective) buyer. This is not the date used to
measure temporal compliance with any of the performance provisions of the contract. Those time constraints
flow from the date a contract is formed by legal acceptance and formation of the contract.

The Full and Correct Name of the Buyer

This will include all the buyer’s complete names. If the buyer is a corporation, include the state where the
corporation is chartered and a copy of the corporate resolution authorizing the activity. If the buyer is a general
partnership, include the names of the partners. If buyer is a limited partnership, include the name of the general
partner. If the buyer is a real estate licensee, disclose that fact. It is not necessary to include the manner in
which the buyer will take title, since this will be handled in escrow.

Description of the Property

The property description must be adequate for a court to identify it: street address, map book, page and parcel,
or other legal description such as an assessors parcel number (APN).

Purchase Price

The offer must state unmistakably the total purchase price offered and the terms to which the buyer is willing to
commit (e.g., all cash, new loan, or loan assumption) as described in the Finance Terms Section. The total
purchase price will not include the buyer’s closing costs and any costs associated with obtaining financing.

Close of Escrow

The offer must state when the close of escrow will occur, in general, to avoid confusion among all parties, it is
best to write a specific date.

Agency Disclosure

Acknowledges the buyer and seller's prior receipt of the agency disclosure form (C.A.R. Form AD).

Potentially Competing Buyers and Sellers

Buyer understands that the broker representing the buyer may also represent other potential buyers who may
make offers on the same property. Seller understands that broker representing seller may also represent other
sellers with competing properties. If not previously disclosed the agent should complete C.A.R. form DA.

Confirmation

This section discloses the agency relationship chosen for this transaction. It is important to remember that if
different agents each represent the buyer and the seller but are employed by the same broker, the agency
relationship must represent both the buyer and the seller (dual agency).

Finance Terms

Licensees should note that the standard C.A.R. agreement states the buyer represents the funds will be good
when deposited into escrow.

The offer will typically outline within the Finance Terms section the initial deposit amount, increased deposit,
the first loan amount and terms, any secondary financing, if FHA/VA financing is to be obtained the buyer has
17 days to provide the seller with written notice of any lender required repairs, any additional financing terms,
the balance of the purchase price, the control total to ensure the terms add up to the total price offered.

It is important to note that the agent has several options regarding the handling of the initial deposit. The agent
may designate that the buyer will deliver the deposit directly to Escrow Holder within 3 business days after
acceptance or the buyer has given the deposit to the agent and the deposit shall be held uncashed until
acceptance and then deposited into the broker's trust account or taken to escrow within 3 business days after
acceptance. The agent should ensure that if this option is selected that the agent has the deposit in hand at the
time of submitting the offer.

The typical contract will contain a financing contingency unless both parties agree otherwise. That is, the
loan(s) necessary for closing will be described and the buyer will agree to act diligently to obtain the financing.
There may be a time limitation so the buyer must act promptly. If a loan contingency exists and in spite of
buyer’s diligent attempt, the stated financing is not obtained within the allotted time the seller can deliver to the
buyer a Notice To Buyer to Perform (C.A.R. form NBP). The buyer then must remove the financing
contingency and proceed with the transaction or the seller may chose to cancel the contract.

Typically the buyer will have 7 days after acceptance to deliver to the seller written verification that buyer has
sufficient funds to cover the down payment and closing costs and when the loan application must be completed.
The buyer typically has 17 days to remove the loan and any appraisal contingencies.

Allocation of Costs

The offer will outline the allocation of costs between buyer and seller, including but not limited to:

• Inspections and Reports

The contract will specify whether or not a pest control inspection is to be performed, who will complete
the inspection and it may specify who must pay for any work required so that a registered structural pest
control company can issue a written certification that the property is free of evidence of active infestation
in the accessible areas. The C.A.R. standard form Wood Destroying Pest Inspections and Allocation of
Cost Addendum – WPA can be used to add additional clarity or assign specific responsibility for repairs.

Lenders may require issuance of a certification prior to funding. If the contract provides that some of the
required work will be completed at seller’s expense after close of escrow, that provision may also require
that the seller deposit funds into escrow, to be disbursed when the buyer has received a written
certification.

• Other Inspections

The contract will specify if the buyer or the seller will pay for various inspections or reports such as septic
systems, wells and natural hazard zone disclosures.

• Government Requirements and Retrofit

o Retrofit

The contract may assign responsibility for any retrofitting required, upon sale, by the local
government. This could include among other items the installation of low flow showerheads and
gallon restricted flush toilets.

o Smoke Detector(s)

The contract may reiterate state laws that require that dwelling units be equipped with smoke
detectors approved by the State Fire Marshall. In an existing dwelling, there must be a battery-
operated smoke detector outside each sleeping area. As of August 14, 1992, new construction (or
an addition, alteration or repair that exceeds $1,000 and requires a permit or includes addition of
a sleeping room) must include smoke detectors in each bedroom and at a point centrally located
outside the bedroom(s). In new construction, the smoke detector(s) must be hard-wired, with
battery backup. The seller must give the buyer written certification of smoke detector
compliance, as required by Health and Safety Code Section 13113.8. This may be done in the
contract or in a separate writing. Certain transactions are exempt from this requirement, as set
forth in Health and Safety Code Section 13113.8(d). These exemptions are nearly identical to
those set forth below relative to the provision of a Transfer Disclosure Statement.

o Water Heater Bracing

The contract may set forth the seller’s duty to see that each water heater is braced, anchored or
strapped, in accordance with the California Plumbing Code, to resist falling or horizontal
displacement during an earthquake. As indicated in Health and Safety Code Section 19211, the
seller must give the buyer written certification of compliance in the contract, the Homeowner’s
Guide to Earthquake Safety (discussed later in this chapter), in the Transfer Disclosure
Statement, or in some other transaction document.

• Escrow and Title

This section specifies how title and escrow fees are to be paid and establishes the escrow holder.

• Other Costs

Establishes who is to pay for additional costs such as County Transfer Tax, any Homeowner's Association
transfer fees, Homeowner Warranty plans, etc.

Closing and Possession

Typically for the benefit of the lender, the offer will address if the buyer does or does not intend to occupy the
property and the date and time occupancy will be delivered. When using the standard forms and the transfer of
title and occupancy do not occur at the same time, buyer and seller are advised to enter into a written agreement
and consult with their insurance and legal advisors. The typical standard form used for occupancy under 30
days is the Purchase Agreement Addendum – PAA, which references paragraph 3. In addition the standard form
will address among other items, tenant occupancy, warranty rights and the disposition of keys, locks, security
systems and HOA facilities.

If the property is tenant occupied it is the seller's responsibility to have the property vacated at least 5 days prior
to the close of escrow unless otherwise agreed to in writing.

If the property is being purchased as an income/investment property, the Residential Income Purchase
Agreement and Joint Escrow Instructions – RIPA standard form should be considered. Regardless of the form
used, if applicable, the standard contracts have language dealing with tenants. The standard contract can help
ensure that the rental situation undergoes a smooth transition by requiring that:

• the seller, within a stated period of time, give the buyer copies of the rental agreement/lease, the
current income and expense statement, and any notices sent to the tenants;

• the seller cannot make any changes to the rental agreement/lease without the buyer’s consent;

• the seller must give the buyer written statements from the tenants confirming the salient aspects of the
tenancy and that no defaults exist; and

• the seller must transfer to the buyer, through escrow, any unused tenant deposits.

Statutory Disclosures

The offer will outline the required statutory disclosures. See the Disclosures section of this chapter for more
details.

Condominium and Planned Unit Development Disclosures

The seller typically has 7 days if not previously disclosed to disclose whether the property is a condominium or
is located in a planned unit development. Typically within 3 days, if applicable, the seller must order all
required documents from all controlling Home Owners Associations.

Items Included or Excluded From Purchase Price

The buyer and seller should be very clear on items that are included or excluded from the sale and the typical
contract will state the seller represents they own the items being transferred and they will be transferred free
and clear of any liens and without warranty.

o Fixtures

Subject to specific exclusions made part of the contract, the buyer is entitled to all fixtures.
Fixtures are items attached permanently (e.g., by cement, plaster, bolts, screws, or nails) to what is
permanent (walls, etc.). Examples are electrical, lighting, plumbing and heating fixtures, fireplace
inserts, solar systems, built-in appliances, window coverings, TV antennas, air conditioners, and
in-ground landscaping.

o Personal Property

The buyer is entitled to only that personal property listed in the contract and subject to lender
approval. This could include any large outside potted plants, as these are ordinarily not fixtures.

Condition of Property

Unless otherwise agreed to in writing the property is sold in its present physical ("as is") condition subject to
the right of the buyers to inspect and investigate, including the investigating the insurability of the property.
The seller shall disclose all material facts and defects including known insurance claims.

Buyers Investigation of Property

Acceptance of the property’s condition is a contract provision, subject to inspections and investigations to be
conducted at buyer’s expense. The buyer must communicate approval of the property’s condition or request the
seller make repairs or take other actions.

The seller shall make the property available for all of the buyer's investigations and buyer shall give the seller
complete copies of all investigation reports obtained by the buyer.

The seller shall have all utilities on for buyer's investigations

The buyer agrees to keep the property free and clear of any liens and to repair any damage arising from the
buyer’s inspections or investigations.

Seller Disclosures

The contract has provisions for disclosures, addenda and advisories such as Buyer's Inspection Advisory
(C.A.R. form BIA), Purchase Agreement Addendum (C.A.R. form PAA), Probate Advisory (C.A.R. form
PAK). If any of the disclosures, addenda are checked they become a part of the contract and should be signed
and included at the time of presenting the offer.

Title and Vesting

The contract will state that title will vest as directed by the buyer in instructions to the escrow holder. As there
can be significant legal and tax implications, a real estate licensee should urge a buyer to seek competent advice
regarding the manner of taking title.

The contract will typically require transfer by grant deed, with mineral, oil and water rights if currently owned
by the seller.

The contract will state that title must be free of financing liens except as provided in the contract and will be
subject to all other encumbrances, easements, covenants, conditions, and restrictions, etc. shown in the
preliminary title report. Title will also be subject to any other exceptions disclosed to, or discovered by, the
buyer prior to closing unless the buyer disapproves in writing of a particular exception.

The contract will designate which party must pay for a preliminary title report and a policy of title insurance.

Sale of Buyer’s Property

The offer will indicate if the offer is contingent upon the sale of any property owned by the buyer, if so the
licensee will use the C.A.R. standard form Contingency For The Sale Or Purchase of Other Property – COP.
The Seller, who counter offers with a contingency subject to finding a replacement property will also use this
standard form.

Time Periods, Removal Of Contingencies, Cancellation Rights

The contract will state that time is of the essence and that the time for performance can be extended or any
other provision of the offer can be modified only by a writing signed by both buyer and seller. In general the
buyer has 3 days to get the deposit to escrow, 7 days to complete loan applications and provide verification of
funds and 17 days to inspect and investigate, including the properties insurability. The seller typically has 7
days to provide the buyer all required disclosures. Any removal of contingencies must be in writing using the
C.A.R. standard form Contingency Removal – CR. If one party does not perform, the other party has the right
to deliver a “Notice To Perform.” What happens thereafter depends upon the action of the noticed party and the
response of the party giving the notice. Unilateral cancellation of the agreement and escrow may be possible
after the Notice To Perform period has expired; however, the disposition of funds on deposit must be bilateral.

Repairs

The buyer must communicate approval of the property’s condition by releasing the inspection and investigation
contingency or request the seller make repairs or take other actions The buyer and seller then have a period of
time to negotiate buyer’s requests. If the seller is willing to correct the items, the transaction proceeds. If the
seller is unable or unwilling to correct the items, the buyer must either proceed with the transaction or cancel
the escrow and contract.

Final Verification of Condition

The agreement will specify that the buyer has the right to make a final inspection of the property within 5 days
prior to closing, not as a contingency of the sale but solely to confirm the property is in the same condition, any
repairs have been completed as agreed between the parties and the seller has complied with all other contractual
obligations.

Pro-rations of Property Taxes and Other Items

Typically, the contract will require that certain expenses of ownership be paid current as of the date of close of
escrow, to become the buyer’s responsibility thereafter. These include:

• real property taxes (including supplemental taxes) and assessments;

• if applicable, homeowners’ association assessments;

• premiums on insurance assumed by buyer; and

• payments on bonds assumed by buyer.

If the property is a rental, the rent will be prorated so that any prepaid rent for time on and after the date of
close of escrow will be credited to the buyer.

Withholding Taxes

The offer will state the buyer and seller agree to execute any instrument reasonably necessary to comply with
Federal and California withholding laws. Typically the C.A.R. standard forms AS is used.

Selection of Service Providers

The offer will state if brokers refer buyer and seller to persons, vendors or service providers, that brokers do not
guarantee the performance of any providers. Buyer and Sellers may select providers of their own choosing.

Multiple Listing Service

The offer may give the brokers authorization to report the terms of the transaction to any MLS, to be published
and distributed to other parties on terms approved by the MLS.

Equal Housing Opportunity

The offer informs the parties that the property is sold in compliance with federal, state and local anti-
discrimination laws. It is illegal to discriminate on the basis of race, color, religion, sex, handicap, familial
status, or national origin.

Attorney Fees

The offer states, with a few exceptions, in any action arising out of the agreement, the prevailing party shall be
entitled to reasonable attorney fees and costs from the non-prevailing party.

Definitions

For clarity, the standard C.A.R. offer defines the various terms used in the offer. The user should be familiar
with these definitions or seek professional advice.

Broker Compensation

If applicable, the offer will specify that the seller or buyer, or both, agrees to pay compensation to the broker as
specified in a separate written agreement between the broker and seller or buyer.

Compensation is due upon close of escrow, or if escrow does not close, the seller and/or buyer agrees to pay
Broker as specified in a separate written agreement between the seller and/or buyer.

Joint Escrow Instructions

The standard C.A.R. form serves as joint escrow instructions and if accepted by the escrow holder, the escrow
holder will provide the parties an escrow holder acknowledgment. This acknowledgment will disclose
information about the escrow holder, the escrow number assigned, the license status of the escrow holder and
will reinforce the acceptance is subject to any supplemental instructions and general provisions issued by the
escrow holder. A copy of the agreement shall be delivered to the escrow holder within 3 business days after
acceptance.

Liquidated Damages

If separately signed or initialed by both seller and buyer, the liquidated damages paragraph is activated and
provides that if the seller proves that the buyer breached the contract:

1. The seller is released from the obligation to sell the property to the buyer.

2. The amount of the liquidated damages is limited to the buyer’s deposit, to a maximum of 3% of the
purchase price.

The liquidated damages provision must be printed in at least 10-point bold type or in contrasting red print in at
least 8-point bold type.

If the deposit was increased after the initial offer/acceptance, the buyer and seller must, if the amount of the
increase is to be subject to liquidated damages, sign a separate liquidated damages agreement covering the
increased deposit.

Dispute Resolution

The parties agree to mediate, absent some exclusions, all disputes and claims before resorting to arbitration or
court action. A mediator is impartial and may facilitate resolution of a dispute but cannot impose a settlement.
However, mediation can result in a binding settlement document signed by seller and buyer. For mediation,
which is not successful, the contract may afford the option of proceeding to arbitration. An arbitration,
conducted in accordance with the rules of either the American Arbitration Association (AAA) or Judicial
Arbitration and Mediation Services, Inc. (JAMS), results in a binding decision.

Terms and Conditions of Offer

The user should note that among other things, the offer will state that if at least one but not all parties initial a
particular section, a counter offer is required until agreement is reached.

In addition this section will state the seller has the right to continue to offer the property for sale and to accept
any other offer at any time prior to notification of acceptance.

The offer and any supplements, addendums or modifications, including any copy, may be signed in two or
more counter parts, all of which shall constitute one writing.

Time of Essence, Entire Contract and Changes

The contract will state that time is of the essence and that the time for performance can be extended or any
other provision of the offer modified only by a writing signed by both buyer and seller.

It should be noted in the standard agreement published by C.A.R., all prior discussions and negotiations are
superseded by the written agreement. Thus it is important to commit to writing all terms and conditions.

Expiration

Unless otherwise stated the offer will expire at 5:00 PM on the third calendar day after the offer is signed by the
buyer.

Acceptance of Offer

In order to form a binding contract, the seller must accept the buyer’s offer in writing, without modification,
and communicate that acceptance to the buyer before a specified expiration date.

If the seller finds unacceptable some element(s) of the offer, the seller may make a counteroffer, giving the
buyer a certain time to accept. These negotiations will culminate in either a stalemate or a contract. If a contract
is reached, the result will be either breach, appropriate cancellation of the contract and escrow or transfer of the
property.

The seller warrants that the seller is the owner of the property or has the authority to execute the agreement and
acknowledges receipt of a copy of the agreement.

Confirmation of Acceptance

It is a good practice to document the date and time that the buyer or the buyer’s representative personally
received a copy of the signed. A binding agreement is created when a copy of the signed acceptance is
personally received by the buyer or the buyer's authorized representative. Completion of this confirmation is

not legally required in order to create a binding agreement; it is solely intended to evidence the date that
confirmation of acceptance has occurred.

Other information

Four additional information boxes are included after the buyers and sellers signatures. These sections provide
clarity and ease of use in contacting the parties assisting the buyer and seller during the transaction. They are:

1. Information about the real estate brokers involved in the transaction.

Real estate brokers are not parties to the agreement between buyer and seller; this section documents the
contact information for the real estate brokers assisting the buyer and seller as well as cooperating broker
compensation information.

2. Escrow Holders Acknowledgment

If accepted by the escrow holder, the escrow holder will provide the parties an escrow holder
acknowledgment. This acknowledgment will disclose information about the escrow holder, the escrow
number assigned, the license status of the escrow holder and will reinforce the acceptance is subject to any
supplemental instructions and general provisions issued by the escrow holder.

3. Presentation of offer

Specifies the date the offer was presented to the seller.

4. Rejection of offer

In the event the offer is rejected and no counter offer will be made, it is a good practice for the licensee to
provide the buyer’s agent with an acknowledgement that the offer was reviewed by and rejected by the
seller.