California Realtors Introduce New Purchase Contract

On April 28, 2010 the California Association of Realtors® (CAR) will release its newest version of the Residential Purchase Agreement (RPA). The RPA has no "official" status in California, but it is unquestionably the most widely used contract in residential real estate transactions throughout the state. It is used by non-Realtor® agents as well as by those who are CAR members.

Not every real estate agent will welcome the appearance of a new standard contract. Change is so painful. But there really is not a lot to be worried about. Even though there has not been a significant modification to the CAR purchase agreement since 2002, this latest version is not radically different from the one that is currently in use.

Changes to CAR purchase contracts do not come out of the blue. The association's Standard Forms Advisory Committee solicits member comments and suggestions on an on-going basis throughout each year. More than 1,000 member inputs helped to shape this latest version.

Some changes reflect changing market conditions; others may come about as a result of events and trends in the legal arena; still others seek to address areas that have been the subject of disputes about interpretation. And of course there will always be that category of "A Good Idea that No One had Thought of Before."

As an example of the latter, we note that the new contract contains an agency disclosure and confirmation of agency paragraph at the very outset of the agreement. For years, the agency confirmation had been pretty well buried (paragraph 27, p. 7). Someone said, "Wouldn't it make more sense to address that issue up front?" Of course, it does.

One of the more significant changes to the RPA is, in effect, an endorsement of an emerging market practice. It deals with the treatment of the buyer's "earnest money" deposit. Until recent years, it has pretty much been assumed that an agent writing an offer would collect a deposit check from the prospective purchaser. Among other things, in California, this then triggered a series of trust accounting measures. More recently, though – and partly as a result of purchasers making multiple offers on short sales – buyers have been saying, "I'll write a check when – if – I have an accepted offer." In the new RPA the first and default option (others may be chosen) is that the buyer will deliver the funds directly to escrow after there has been an acceptance.

Sometimes modifications are made to the standard purchase contract in the hope that they will make things better and that they will alter practices for the good. In the new contract, the provision related to the removal of contingencies or cancellation adds the clause that such actions must be "exercised in good faith." Now, as it stands, common law requires of all contracts an implicit covenant of "good faith and fair dealing." Will the addition of explicit – albeit vague – language result in better performance by principals? Maybe; maybe not. But it doesn't hurt to try.

One of the delightful additions to the new RPA is a Table of Contents cover. It will provide significant assistance to those who need to navigate their way through the (still) eight-page, single-spaced document.

As is always the case, many of the changes made to the RPA will never be noticed by most agents or principals. But that's ok. The provisions will be there when they find out they need them.

Source: L.A. Times