California Has A New Residential Home Purchase Contract In 2022
Have you found a home in California you love and want to write an offer on? Or are you thinking about buying a home in 2022 or the near future? Well in post were going to go over exactly what to expect when writing your first offer on a home, and most importantly the legally binding terms you are agreeing to. First off, I know that Real Estate contracts are extremely boring, however if you’re like me, buying a home is the biggest purchases you will make in your life; and there are a lot of very important terms you will be agreeing to in this contract, so if you can give me just 10 minutes of your time I will help make sure you’re not hit with any surprises during your home purchase. I’m Scott with Homeport Residential; let’s get started writing your first offer.
The entire document that accompanies the California Purchase Contract is 25 pages long and of that 9 pages are what’s known as advisories and disclosures, and the contract itself is 16 pages long. While it’s important to understand the entire document, it’s worth noting that the advisories & disclosures are meant to educate and inform home buyers, while the contract is a legally binding document that each term agreed to by the buyer can be enforced by a court of law
I have another post you can check out if you want more information on the disclosures. For now let’s jump right into the contract.
California’s New Purchase Contract Was Written With Buyers In Mind
The new purchase agreement has moved all of the offer terms such as offer price, type of financing, length of contract, and buyer contingency timelines to the first 3 pages of the contract so it’s easier for the buyer to see all the terms they are agreeing to up front.
California Purchase Contract Paragraph 1
The contract begins with paragraph 1. by identifying when it was written, who the offer is from, the address and APN or tax number of the home the offer is written for.
California Purchase Contract Paragraph 2
Paragraph 2 reiterates the type of agency both the buyer and seller have with their agent. Remember, your agent is either representing you exclusively or representing you and the seller at the same time.
California Purchase Contract Paragraph 3
Paragraph 3 list all the terms of the purchase and allocation of cost, between the buyer and the seller. It’s important to note here that each term identified and each allocation of costs has it’s own paragraph for further explanation later in the contract, and both the buyers and the sellers should read all 16 pages!
The terms and conditions starts with line item 3A which is simply the purchase price offered by the buyers for the home. Notice under the additional terms section there is a box you could select that reads “All Cash”, this is a good time to point out when you’re reading this section and you come across a term or condition with a check box in it, if that box is unchecked then that term or condition is Not Applicable.
Line item 3B is when the home sale or escrow will officially close, you can select how many days the escrow period will be or select an exact date to close on the sale of the home. This is the best day in the whole process as this is generally the day you get your keys to the home.
Line item 3C identifies how long the buyer’s offer is valid for. Buyers Tip here. After you submit an offer to the sellers you can withdraw that offer at any time before the expiration date as long as your agent has not communicated to you that the sellers have accepted your offer.
Line item 3D is the initial deposit amount offered by the buyer. Most offers that I see offer between a 1 to 3% of the purchase price as their earnest money deposit. Keep in mind you’re asking the sellers to take their home off the market to open escrow so as a buyer this is where you need to show you’re willing to put some skin in the game.
Increased deposits are not used very often for first time home buyers, however, buyers can offer to increase their deposit amount after they have completed various home inspections, etc.
Line item 3E list how much money the borrower will be financing on the home, the interest rate they will not exceed, and the type of home loan the buyer will be using.
Line item 3E2 additional financing amount is also not generally used by first time home buyers.
Line item 3E3 identifies if the home will be the buyers primary residence or investment property.
Line item 3F list how much the total down payment the buyer will be putting down on their home loan.
Paragraph 3.G (1,2)
Line item 3G list if the seller will be providing any credits or concessions to the buyers. These credits could be in lieu of any repairs to be made on the home, or to help the buyer with their closing costs, however in a sellers market these credits are extremely rare and hard to come by.
Line item 3.G.2 is a place to put any additional finance terms the buyer might request with their offer and is not commonly used.
Line items 3H. 1, 2,3 identify the various documents verifying the buyer has enough cash on hand to cover the cost of their home purchase, down payment and closing costs as applicable. It also verifies the buyers loan application and pre-approval or pre-qualification. *Buyers note here. If you can complete all the requirements with your lender to get fully underwritten that makes your offer much more competitive to the sellers.
Line item 3J identifies the date when the Final Verification of Condition otherwise known as the buyers final walk through will happen.
Line item 3K list how long the buyer has to assign their interest in the purchase to either the buyers own trust, or entity that is wholly owned by themselves. No other forms of assignment are allowed in the standard purchase contract here in California.
The next section of the contract describes the buyer contingencies that protect the buyers earnest money deposit while the buyer conducts all of their inspections on the home and works towards obtaining their final loan approval.
Line items 3L 1 and 2 is for the buyers loan and appraisal contingencies and defaults to 17 days. You can shorten or lengthen the number of days here, and you also have the option to waive them as well.
Line item 3L3 is the buyers Investigation contingency, and for any and all home inspections the buyer would like to conduct on the home and defaults to 17 days as well.
Line items 3L 4 through 7 are the timeframes the buyer has to review all of the seller disclosures, title reports, any leased items that convey with the home, and any CC&R’s or what’s know as covenants, conditions, & restrictions for properties located in an HOA community. These all default to 17 days or 5 days after receiving each set of documents from the seller.
Line item 3L8 is the contingency used when the buyer will need to sell their own home as a condition to purchase this home. *Buyers note. In a sellers market it’s next to impossible to get your offer accepted if you’re using this contingency.
Line items 3M 1 through 3 describes when the buyer will take possession of the home, if there will be any rent back period to the sellers after the sale, or if the home is being sold while tenants have an active lease and will still be living in the home after the sale.
Line Items 3N1 through N5 list the timeline the seller has to deliver all documents to the buyer, sign and return their escrow paperwork, pay for and order HOA documents (if applicable) as well as Install required smoke alarms, CO2 detectors, and appropriate water heater bracing.
The next section of the contract paragraph 3P 1 and 2 identify all items in the home that are either included or excluded in the sale. This is primarily focused on major appliances, home security systems, above ground pools and spas, etc. The bottom line on this section is to ensure if you want something in the home or don’t want it left behind be certain to list it here. Even if something is listed as staying with the home in the MLS if it’s not in the contract it doesn’t matter.
Paragraph 3Q 1 through 18 describes the allocation of cost between the buyer and seller for most of the common closing cost associated with a home sale and purchase in California. You will want to review each line item with your Realtor carefully so you know exactly which cost you will be responsible for with your offer. I have a separate video that breaks down all the different types of closing cost that you can check out as well.
Paragraph 3R is for any additional terms the buyer wishes to add to their offer.
Paragraph 4 of the contract identifies any additional addendums or advisories that the buyer is including with their offer that are specific for this home purchase. For example if you’re buying a manufactured home you would include the Manufactured Home Purchase addendum.
Paragraph 5 And The Remainder Of The Purchase Contract
Paragraph 5 and the rest of the contract contains a more detailed explanation of all the terms we just went over. There is also a highlighted section on arbitration and mediation that every buyer needs to read before submitting their offer, and a section for the escrow company that will handle the home sale to acknowledge receipt of the purchase contract.
California Purchase Agreement 2022 Summary
Now I know we covered a lot of ground in a relatively short period of time but I want to wrap this video up with a few important points. As a buyer it is your responsibility to read and understand this contract in it’s entirety, after all it’s your money on the line. I would encourage you to read the purchase contract ahead of time and ask your Realtor if there is anything in the contract you don’t fully understand. As a buyer if you take the time to understand the purchase contract before you write your fist offer on a home you will be way ahead of the process and more likely to have a smooth and seamless home purchase. If you have questions about anything we just went over be sure to leave them in the comments below or reach out to me directly.