BROKER RISK MANAGEMENT
WEEKLY PRACTICE TIP
WEBINAR Q&A A CLOSE LOOK AT THE RPA PART IV
On April 6, 2026, Broker Risk Management held a webinar regarding a close look at the California Association of Realtors’ Residential Purchase Agreement, Part 4. The following are questions and answers from that webinar:
QUESTION NO. 1: What if the buyer in a Residential Purchase Agreement offers a deposit of more than 3%? Is the entire deposit subject to liquidated damages?
ANSWER: The RPA states that if a buyer purchasing a residential property of no more than four residential units, one of which the buyer intends to occupy, defaults on the contract, the damages the seller can recover from the buyer is the buyer’s deposit up to 3% of the purchase price. California law provides that there is a presumption that liquidated damages in a Residential Purchase Agreement of up to 3% is reasonable. A buyer can offer a deposit greater than 3%, but the liquidated damages provision would need to be modified to increase the liquidated damages to the amount of the deposit being made by the buyer. In addition, if the buyer defaults and the seller attempts to collect more than 3%, the seller would have to establish that the additional deposit beyond 3% was reasonable.
QUESTION NO. 2: If the seller or buyer signs a cancellation, can the seller still proceed to recover the buyer’s deposit?
ANSWER: Yes, if the buyer defaults on the buyer’s obligations in the RPA, and seller has not signed a mutual cancellation agreeing to return the deposit. For example, if the buyer removed all contingencies and failed to close the escrow, the seller could issue a demand to close escrow and if the buyer does not close the escrow, the seller would have a right to attempt to collect the buyer’s deposit as liquidated damages subject to the above limitations. However, do not advise your buyer client that they have a right to collect liquidated damages or other compensation from the buyer as that is a legal conclusion. Always advise the buyer to consult with their own qualified California real estate attorney.
QUESTION NO. 3: If a buyer and seller initial liquidated damages, and the buyer defaults, can the seller sue the buyer for specific performance, to force the buyer to purchase the property?
ANSWER: No. By agreeing that liquidated damages apply the seller waives all other remedies or damages against the buyer and limits the damages to the buyer’s deposit. However, if the buyer has failed to place the required deposit amount into escrow, the seller may claim that buyer has breached the contract obligations, liquidated damages may no longer apply and the seller may claim a right to collect actual damages and even pursue a claim for specific performance asking the court to require the buyer to purchase the property.
QUESTION NO. 4: How does a buyer make a deposit nonrefundable.
ANSWER: Under California law, a deposit in a residential real estate contract cannot be nonrefundable even if the parties have signed a contract making the deposit nonrefundable unless separate consideration for the deposit is established in the contract. In addition, consideration should be undertaken as to whether the liquidated damages provision should be deleted from the contract under these circumstances. This is complicated with significant risks. Therefore, agents attempting to draft a provision with a nonrefundable deposit are advised to consult with their manager or broker.
QUESTION NO. 5: Can a former tenant of a property sue and record a lis pendens against the property?
ANSWER: A former tenant can only record a lis pendens (notice of pendency of action) if the tenant has a right or interest in the title to the property. For example, if the tenant had an option or first right of refusal to purchase the property, the tenant may have a right to record a lis pendens. However, this is a legal determination that should be made by the parties’ attorneys.
QUESTION NO. 6: How does a client sign their name to a contract if they are a trustee or in probate, and administrator/executor?
ANSWER: A client would sign their name and their title. For example, if a client is a trustee, their name would be Joe Smith, Trustee of the Joe Smith Family Trust. As a reminder, a trust is not a legal entity. Therefore, a trust should not be a party to a contract.
QUESTION NO. 7: If an agent is not a party to the RPA, why is the buyer’s agent’s commission confirmed on the RPA?
ANSWER: You are correct that agents/brokers are not parties to the RPA. However, Paragraph 18A of the RPA confirms that the seller, buyer or both, agree to pay compensation to Broker as specified in a separate written agreement between Broker and that seller or buyer. Further, ¶19D(1) goes on to state that “Agents are not a party to the escrow except for Brokers for the sole purpose of compensation pursuant to paragraph 18A.”
QUESTION NO. 8: If a seller has accepted an offer and the contract has been ratified and is in escrow and seller receives another offer, does that offer have to be presented to the seller?
ANSWER: Yes. Unless a seller instructs you in writing not to provide offers, all offers must be timely submitted to a seller. Even then, it is good practice to advise the seller of the new offer since the seller may change their mind and, place that second offer into backup possession.
This Weekly Practice Tip an attorney-client privileged document and is for the exclusive use of clients of Broker Risk Management and their agents. It may not be reproduced or distributed without the express written consent of Broker Risk Management. The advice and recommendations contained herein are not necessarily indicative of standards of care in the industry, but rather are intended to suggest good risk management practices.