1. Chapter 10

Offers and Purchase Agreements

2. Topics for Today

Review of Contract Formation

Offer and Acceptance

Counter offers

Purchase Agreements

CAR® Residential Purchase Agreement form

CAR® Addenda forms

CAR® Counter Offer Forms

3. Requirements for a Valid Contract

Four elements of a valid contract:

Parties Capable of Contracting

Mutual Consent (offer and acceptance)

Lawful Object

Sufficient Consideration

And, for real estate agreements, contract must be in writing

4. Mutual Consent

Mutual consent must result in a "meeting of the minds"

the parties must be in agreement on all of the terms of the contract

Mutual consent is usually evidenced by

a proposal (offer) by one party, and

the acceptance of that offer by the other party

5. CAR® Residential Purchase Agreement

When completed by buyer:

- sets forth the terms of the buyer's offer, and

- serves as receipt for buyer's deposit

Text pp. 278-282

6. Seller's Acceptance

If the seller accepts the buyer's offer by signing the Residential Purchase Agreement without any changes, the agreement becomes the purchase contract between seller and buyer.

7. Termination of Offers

An offer will be terminated if:

- the offeree fails to accept offer within time period set by offeror for acceptance

- either the offeror or offeree dies or becomes incapacitated

- the offeror revokes the offer before the offer is accepted

- the offeree rejects the offer, either by express rejection or by making a counter offer, or

- the property is destroyed

8. Buyer's Offer

Section 1 describes the basics of the buyer's offer

9. Section 2: Describes How the Buyer will Pay the Purchase Price

Deposit, Increased Deposit, New Loan, Other Loans, Purchase Price, Purchase Price minus A+B+C+D

10. Deposit: Trust Fund Requirements

Upon Buyer's instructions, Broker may keep deposit check uncashed, but must inform Seller

Broker must, within 3 business days:

Give trust funds to broker's principal

Deposit trust funds in escrow

Deposit trust funds in broker's trust fund account

11. Contingencies

A contingency (condition) is a conditional promise

Condition precedent: person making the promise is legally obligated to perform only if a specified event happens

Condition subsequent: person making the promise is released from a legal duty to perform if some specified event happens

Common Purchase Agreement Contingencies:

Obtaining a loan or loans

Property appraising for at least the sales price

Review and approval of title

Property inspection

Sale of home

12. Loan Contingency

Section 2 provides that getting the loan described in 2.C. is a contingency to the buyer's obligation to purchase

13. Other Loan Contingency Clauses

Verify Funds to close, Provide Prequal. Letter, Appraisal Contingency, Removing Loan Contingency

14. Other Contingencies

Property inspection, title, and sale of home

15. Form COP: Sale of Home Contingency

Buyer's contingency, Seller's right to continue marketing

16. Removal of Contingencies

Time period for buyer to remove contingencies or cancel, Time period for seller to provide documents, Seller's right to cancel

17. Possession and Occupancy

Deposit as liquidated damages limited to 3% of price, Occupancy date, Tenant in possession

18. Dividing Costs

Structural pest control (also addendum), Other costs: custom varies by region, but all are negotiable

19. Disclosures: Paragraph 5

TDS, Mello-Roos, natural and environmental hazards, registered sex offenders

20. Disclosures: Paragraph 6

Common interest development disclosures

Required by statute: CC&Rs, HOA Articles and Bylaws, HOA financial statement, Statement of HOA dues and charges, statement of pending claims

Buyer review and approval is contingency

21. Condition of Property

Seller to disclose known defects, Property Sale "as is", Buyer's right to request repairs or cancel contract

22. Repairs

Section 14 B:

(1) Buyer may request that seller make repairs

(2) Seller has no obligation to perform any repair

(3) if seller does not agree to make repairs, buyer may choose to close or cancel contract

Section 10: If seller makes repairs, how repairs to be made:

23. Fixtures and Personal Property

Items included B(1), (2) & (3)

Items excluded

24. Liquidated Damages in Residential Purchase Agreements

For purchase of owner-occupied residential properties, up to 4 units:

Liquidated damages clause must be in bold type and separately initialed

Rebuttable presumptions:

liquidated damages of 3% or less are reasonable

liquidated damages of more than 3% are unreasonable

25. Liquidated Damages

Retained Deposit not more than 3%

Separate Initials

26. Residential Listings and Purchase Agreements: Arbitration

Agreements for binding arbitration in real estate listing agreements and purchase contracts:

- must be printed in bold or red type

- must contain the exact notification language required in Civil Code § 1298

- must be separately signed or initialed

27. Mediation; Arbitration

Bold Type, Required Notice, Separate Initials

28. Confirmation of Agency

Listing Agent, Selling Agent

29. Expiration of Offer

Time period when offer will expire

Note: Buyer can give third party authority to receive acceptance

30. Broker Compensation; Acceptance

Confirming Compensation, Seller's Acceptance, No contract formed if this box checked; counter-offer

31. Other Purchase Agreement Requirements

Person signing agreement must receive a copy when the agreement is signed

Listing agent must present all offers to the seller, even after seller has accepted another offer

Exceptions: seller instructs broker not to present new offers, frivolous offers

32. Common Contract Addenda

Seller financing

Secondary financing

Assumed financing

Wood destroying pest inspection

Buyer's inspection advisory

33. Seller Financing Addendum


34. Buyer's Inspection Advisory