Behind the Words of the California Association of Realtors® Residential Purchase Agreement: Legal and Practical Considerations

• Publication year: 2022
• Author: Written by Neil Kalin and Joseph Yoon

BEHIND THE WORDS OF THE CALIFORNIA ASSOCIATION OF REALTORS® RESIDENTIAL PURCHASE AGREEMENT: LEGAL AND PRACTICAL CONSIDERATIONS

Written by Neil Kalin and Joseph Yoon

I. INTRODUCTION

The California Association of REALTORS® (C.A.R.) standard form purchase agreement (C.A.R. Form RPA, or RPA, for short) is generally accepted as the most widely used purchase agreement for residential property sales in California. There were more than 440,000 sales of single-family residences in California in 2021.⁰¹ That same year, California REALTORS®⁰² downloaded more than 2,000,000 RPAs into their electronic transaction folders.⁰³ These transaction files far outnumber actual sales because they include purchase offers that are made and not accepted, as well as those made for condominiums and smaller multi-unit properties such as duplexes. The RPA is more than a raw contact between a buyer and seller, it is a compilation of terms and conditions intended to satisfy legal requirements, practical considerations, and educational necessities. It is a roadmap to the purchasing and selling journey experienced every year by hundreds of thousands of Californians and their respective real estate representatives. This article will take the reader through the June 2022 version of the RPA, explaining legal requirements, practical considerations, and necessities behind the text on the pages.⁰⁴

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II. THE TITLE: "CALIFORNIA RESIDENTIAL PURCHASE AGREEMENT AND JOINT ESCROW INSTRUCTIONS"

The word "California" reflects that the form is available for use anywhere in the State. While common practices may have evolved from one community to another and local governments may have enacted ordinances applicable only to their jurisdiction, the overwhelming number of laws impacting the buyer seller relationship are binding throughout California.⁰⁵

The word "Residential" reflects that the RPA is intended for the sale of residential use properties, be they single-family dwellings, including individual condominium units,⁰⁶or multiple unit properties, not exceeding four units, often referred to as duplexes, triplexes, and fourplexes.⁰⁷

The word "Agreement" reflects that once the document is signed by both parties and accepted according to its terms,⁰⁸the contract terms become binding on both buyer and seller.⁰⁹

"Joint Escrow Instructions" is included in the title because of the former practice of escrow companies,¹⁰ most notably independent escrows in Southern California, to rewrite the terms of the purchase agreement and incorporate them into the escrow instructions for both buyer and seller to sign after a buyer's offer had been accepted and a deposit was placed with the escrow company. If the redrawn purchase agreement terms merely duplicated the contract terms, then this practice was unnecessary and also harmless. However, when the escrow instructions varied from the purchase agreement, once signed by the parties the redrawn terms could supersede any inconsistent or contradictory terms in the purchase agreement.¹¹ At times, the conflict reflected the subsequent agreement of the parties, but many times the difference was not noticed until a dispute arose. In such cases, inadvertent or unknowing potentially superseding language gave rise to disputes and litigation. In 2000, C.A.R. incorporated joint escrow instructions into the body of its agreements. Subsequently, escrow companies no longer had any reason to redraw the purchase agreement terms and could be satisfied if the buyer and seller signed general provisions and instructions to escrow,¹² thus leaving the substantive contract terms to the purchase agreement.

III. PARAGRAPH 1: PROPERTY AND PARTY INFORMATION

1. OFFER:

A. THIS IS AN OFFER FROM __________ ("Buyer").
B. THE PROPERTY to be acquired is __________, situated in __________ (City), __________ (County), California, __________ (Zip Code), Assessor's Parcel No(s). __________ ("Property").
(Postal/Mailing address may be different from city jurisdiction. Buyer is advised to investigate.)
C. THE TERMS OF THE PURCHASE ARE SPECIFIED BELOW AND ON THE FOLLOWING PAGES.
D. Buyer and Seller are referred to herein as the "Parties." Brokers and Agents are not Parties to this Agreement.

California's statute of frauds (SOF) provides that agreements for the sale of real property are invalid unless they, or some note or memorandum thereof, are in writing and subscribed by the party to be charged.¹³ Only the essential, material terms need to be stated to satisfy the SOF. These must include the parties, the price (and the manner and time of payment), and the property.¹⁴ Paragraph 1D identifies the parties as the buyer and seller, and paragraph 1B identifies the property by both street address and Assessor's Parcel Number. The buyer's identity is specified in paragraph 1, the price is enumerated twice in paragraph 3 on page 1, as is the close of escrow and whether the purchase will be made with the assistance of a loan or all with the buyer's cash, and the seller is identified in the signature section on page 15. Arguably, an enforceable agreement satisfying the SOF is created even if only the first page of the RPA is completed, so long as both buyer and seller sign on the second to last page of the sixteen-page form. No prudent attorney would advise a client to stop there, however. The remaining fillable fields addressing issues such as contingencies, delivery of documents, what is included or excluded from the sale, and allocation between buyer and seller of common costs in a real estate transaction, to name a few, are contained in the paragraph 3 grid that stretches from page 1 to page 3, with

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all aforementioned terms found on pages 2 and 3. A court could conceivably find that all or at least some minimum number of these terms are essential to the contract and therefore necessary to be completed to satisfy the SOF.¹⁵

Notably, paragraph 1D of the RPA explicitly states the real estate brokers and agents are not parties to the contract. While real estate licensees play a crucial role in a successful transaction, this sentence is a reminder to the parties that it is the buyer and seller who have contractual obligations to each other. Real estate licensee duties are specified in paragraph 2.

IV. PARAGRAPH 2: AGENCY INFORMATION

2. AGENCY:

A. DISCLOSURE: The Parties each acknowledge receipt of a "Disclosure Regarding Real Estate Agency Relationships" (C.A.R. Form AD) if represented by a real estate licensee. Buyer's Agent is not legally required to give to Seller's Agent the AD form Signed by Buyer. Seller's Agent is not legally obligated to give to Buyer's Agent the AD form Signed by Seller.
B. CONFIRMATION: The following agency relationships are hereby confirmed for this transaction.
Seller's Brokerage Firm __________ License Number __________ Is the broker of (check one): [ ] the Seller; or [ ] both the Buyer and Seller (Dual Agent).
Seller's Agent __________ License Number __________ Is (check one): [ ] the Seller's Agent. (Salesperson or broker associate); or [ ] both the Buyer's and Seller's Agent (Dual Agent).
Buyer's Brokerage Firm __________ License Number __________ Is the broker of (check one): [ ] the Buyer; or [ ] both the Buyer and Seller (Dual Agent).
Buyer's Agent __________ License Number __________ Is (check one): [ ] the Buyer's Agent. (Salesperson or broker associate); or | |both the Buyer's and Seller's Agent (Dual Agent).
C. [ ] More than one Brokerage represents [ ] Seller, [ ] Buyer. See, Additional Broker Acknowledgement (C.A.R. Form ABA).
D. POTENTIALLY COMPETING BUYERS AND SELLERS: The Parties each acknowledge receipt of a [×] "Possible Representation of More than One Buyer or Seller - Disclosure and Consent" (C.A.R. Form PRBS).

Seller's agents are required to give to their sellers, prior to signing a listing, a disclosure of the potential types of agency relationships that may exist in a transaction for the sale of residential property with no more than four units. Buyer's agents have to do the same for their buyer clients, prior to their buyers executing a purchase offer.¹⁶ Standard form listing agreements will likely have the statutory disclosure incorporated into the listing form, but since buyer-side listings are not yet common, often the first chance to bring the statutory form to the buyer's attention is with the purchase agreement. The statutory disclosure form is therefore bundled with the RPA as the first form in the packet. Although the statute does not provide a remedy for failure to make the statutory disclosure, courts have held that a seller's agent who fails to provide a timely disclosure is not entitled to compensation and that a seller may even be entitled to rescission of the purchase agreement.¹⁷ While it is unknown what remedy might be available for a buyer's agent who fails to provide the statutory disclosure form, an agent can minimize their risk by referencing the form in the RPA and including it with the RPA.

In a transaction for the sale of residential property with not more than four units, brokers¹⁸ and agents (either licensed as salespersons or as brokers acting as associate-licensees¹⁹) who are working through the primary broker's license are required to disclose to both principals the actual agency relationship they have with buyers and sellers and to confirm the relationship either in the purchase agreement or in a separate writing executed prior to or coincident with the purchase agreement.²⁰ A brokerage firm is considered a dual agent if one licensee working through that brokerage firm represents both buyer and seller or even if one licensee is working exclusively with the buyer and another licensee is working exclusively with the seller.²¹ In the latter case, the brokerage firm and all agents working with a principal in the transaction are dual agents.²²

Paragraph 2D refers to a potential situation where a brokerage firm, prior to a contract being entered into between a buyer and a seller, might represent...