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New and Revised CAR Forms for December, 2021 — Part I – Revised RPA and Seven Other CAR Purchase Agreement Forms

by | Dec 3, 2021 | Contracts and Forms

Q:     CAR will soon be releasing its new Residential Purchase Agreement (“RPA”). Can you provide a quick summary of the substantive changes that CAR has made to that form along with CAR’s other purchase contract forms?  I know the new RPA is 16 pages long and looks different, but what has really changed?

A:     YES. CAR is releasing its new RPA the second week in December along with many other new and revised forms. Much of how the current RPA is used exists in the new RPA but those procedures are better explained in this Week’s Tip which focuses on the significant changes to the RPA and the other CAR purchase agreement forms that are either new or revised.

Over the next few weeks, we will be releasing additional Tips on CAR’s new and revised forms, as follows:

Weekly Practice Tip, New & Revised CAR Forms for 12/21 – Part 2 – Significantly Revised Advisories, Disclosures and Contract-Related Forms (12-10-2021)

Weekly Practice Tip, New & Revised CAR Forms for 12/21 – Part 3 – Renamed Forms & Forms with Minor Revisions (12-24-2021)

I.  QUICK SUMMARY OF THE SUBSTANTIVE CHANGES TO THE RPA 

A.  The Grid: Paragraphs 3A-R: 

With the exception of whether Liquidated Damages and/or Arbitration are included in the Purchase Agreement, all of the negotiable terms are now combined into a single chart or grid in the first 3 pages of the RPA.  The negotiable terms and their location in the grid include: Price (¶3A); COE (¶3B); Deposits (¶3D); Loan terms; (¶3E) Timing of Buyer providing Verification documents (¶3H); Timing for the Buyer’s Final Verification (¶3J); What Contingencies are included or waived and, how long the Buyer has to remove those contingencies (¶3L); Possession (¶3M); Timing of Buyer Documents, Fees and Compliance (¶3 N); What Personal Property is Included (¶3P) with an easy-to-read checklist for most personal property items; and Allocation of Costs & Which Third Party Vendors Provide the Services (¶3Q).

The Grid provides the Buyer with significant flexibility in how long the Buyer has to remove the various contingencies or cancel the Agreement by establishing separate time frames for all contingencies.  The default time frame is 17 Days but the Buyer can choose to increase and/or decrease the number of Days as needed for each contingency.

The Grid also enables the Buyer to check a box to remove/waive either the loan and/or appraisal contingencies as part of the offer.  All other contingencies can be removed or waived as part of the offer by checking a box in the Contingency Removal column of ¶3L and attaching a completed and signed Contingency Removal (“CR”) form.

Added to the Grid are three issues that had been buried in prior contract forms to make them easier to find:

¶3C       Expiration of Offer (which does not allow for use of “Upon presentation”);

¶3G(1)  Seller Credits (which must be stated as a dollar amount); and

¶3R       Additional Terms

A new concept has been added to the Grid in ¶3K – there is now a mechanism for the Parties to establish a time frame for when the Buyer can request that the Seller agree to an Assignment of the Buyer’s interests (in whole or in part) to a third party.  The revised Assignment provision in ¶23 is discussed below.

B.  New Procedures and Forms: 

  1.  The Buyer can now specify in the Appraisal Contingency (¶3L-2) that the Property does not have to appraise at purchase price but at a different minimum amount.  If the Buyer is willing to pay the purchase price even if the Property appraises at a lesser sum, this new mechanism will give the Seller greater assurance that a lower appraised value will not be a basis for the Buyer to cancel.
  1. If the Property is Tenant Occupied (Tenant means an adult other than the Seller who resides in any portion of the Property whether or not they pay rent), the RPA requires use of the Tenant-Occupied Property Addendum (“TOPA”).   See Weekly Practice Tip, New & Revised CAR Forms for 12/21 – Part 2 regarding use of that form.
  1. If the transaction involves a Probate Property, use the new Probate Agreement Purchase Addendum (“PA–PA”) or if there is a Mobile Home or Manufactured Home, use the new Manufactured Home Purchase Addendum (“MH-PA”) as specified in ¶4A. These Addenda enable use of the RPA for these types of transactions rather than necessitating separate contract forms.  The RPA can also be used if the Property involves a Tenancy in Common by simply adding the new TIC-PA form or if it is a Stock Cooperative Purchase add the new COOP-PA form.
  1. Seller and Seller’s Agent are authorized to contact the Buyer’s Lender to determine the status of any Buyer loans but cannot discuss anything else.  Buyer must notify Seller if there is a change in lender. (¶5C).
  1. If Sellers do not remove their personal property when possession of the Property is delivered to the Buyer, then the Buyer is to give written notice to the Seller to remove those items within 3 Days as specified in ¶7B.  The written notice that the Buyer (not the Agent) must send the Seller is the Abandoned Personal Property for Residential Property form (“APPR”) which is available in the CAR Sample Letter Library.
  1. If a Revised Preliminary Report (“Pre”) is furnished by the Title Company after the Buyer has removed the Title Contingency and IF the revised Pre reveals material or substantial deviations from a previously provided Pre by that Title Company, then the Buyer has a 5-Day right to cancel in ¶8E(2).  This is not a separate contingency that must be removed; the Buyer will need to quickly consult with the Buyer’s own qualified California real estate attorney to determine whether or not the revised Pre gives the Buyer a valid basis to cancel.
  1. Leased/Liened Items (¶8G):  This contingency was changed.  Now, the Buyer may cancel if the Buyer is unable or unwilling to assume any lease on personal property items or accept an existing lien within the time frame established in ¶3L(7).  If the Buyer neither cancels nor signs any of the required documents to assume the lease or accept a lien, then the Seller must first deliver a 2-Day Notice to Buyer to Perform to sign the documents and, if the Buyer still does not sign that documentation within those 2 Days, the Seller may cancel.
  1. Smart Home Features (¶9B-7):  Sellers must now cooperate with the identification of software or applications for included items and aid Buyer’s efforts to transfer any services needed to operate Smart Home Features or any included utilities or security systems.
  1. Insurance is now listed as a separate component of the Buyer’s Investigation Contingency (¶12B-2) but cannot be separately removed on the revised Contingency Removal (“CR”) form unless using one of the “other” boxes such as 2J.
  1.   Notices to Perform (¶14E) must now specify that the other Party has 2 Days to remove contingencies or perform contractual obligations – the Parties cannot change the time frame. The Demand to Close Escrow (¶14G) must now specify that the other Party has 3 Days to Close Escrow – the Parties cannot change the time frame.
  1. Assignment (¶23):  This aspect of the RPA has been completely revised. The Buyer can now automatically assign all of Buyer’s interest in the RPA to Buyer’s own trust or to any wholly owned entity of Buyer (if it exists at time of the assignment) without the need for obtaining the Seller’s approval and without the need for the Buyer to re-sign any transaction documents. The Grid establishes a time frame for when the Buyer can request to do an assignment to a third party.  During that period of time, the Buyer’s request to do a full assignment to a third party or a partial assignment to add a new Buyer must specify the name of the Assignee and specify whether the Buyer is receiving any consideration for the assignment.  If the Assignee must obtain a loan, then the Assignee must provide verification that the Assignee has applied for a loan.  If the Buyer requests to do an assignment to a third party after the time frame specified in ¶3K, the Seller can refuse to allow the assignment as being untimely.           
  1. Links (¶25K): Documents can now be delivered by providing a link in an electronic document that is Delivered to the designated electronic delivery address specified in the Real Estate Broker Section on page 16.  If the recipient of the link is unable or unwilling to open the link, then the recipient must notify the sender in writing within 3 Days using the CAR Receipt for Reports (“RFR”) form which has been revised to deal with this issue.
  1. Arbitration of Disputes (¶31A):  The Parties can now designate in the RPA who will serve as the Arbitrator.  This option will probably not be used very often but it is critical that the Agents not be involved in selecting the Arbitrator. 
  1. Representative Capacity Signature Disclosure (“RCSD”) form is no longer needed for Buyers or Sellers in connection with the RPA.  If the Buyer or Seller is a Trust, a representative of an estate or some other legal entity (such as an LLC or corporation), or if the person who is signing on behalf of the Buyer or Seller is authorized to sign with a valid Power of Attorney, the information that was in the RCSD is now in the RPA in ¶¶ 32B  (Buyers) and 33B (Sellers).
  1. Seller’s Expanded Ability to Counter (¶33A): If the Seller wants to accept the Buyer’s Offer (without countering any terms) but put it in back-up position, the Seller can now check a box referencing the CAR Back-Up Offer Addendum (“BUO”); however, the BUO must be signed by the Seller and attached to the signed Offer when it is sent to the Buyer’s Agent.
  1. The Confirmation of Acceptance box has been eliminated from the form – it served no legal purpose.

C.  New/Improved Explanations, Advisories, Definitions and Instructions: 

  1. Postal/Mailing address may be different from city jurisdiction.  Buyer to investigate.  (¶1B).
  1. Agency Disclosure forms do not need to be provided to other Brokers. (¶2A).   
  1. Deposits are specified in dollar amounts; the percentage is for calculation purposes only and does not get automatically adjusted if there is a Counter Offer changing the purchase price (¶3D) clarifying the pre-printed language in the first paragraph of the three CAR Counter Offer forms.
  1. Seller Credit is specified in a dollar amount; the percentage is for calculation purposes only and does not get automatically adjusted if there is a Counter Offer changing the purchase price (¶3G-1).
  1. If FHA or VA financing, FVAC form must be used and that form requires that the Buyer have an Appraisal Contingency which the Parties cannot agree to waive (¶3L-2 and ¶5C-4).
  1. Informational Access (¶3L-3) provision gives the Buyer the right to access the Property for an agreed-upon time frame even if the Buyer’s Investigation Contingency has been waived or removed. This right to access the Property is not a contingency and does not create any cancellation rights even if the Buyer discovers something new about the Property. Buyer is not prohibited from bringing inspectors or appraisers to the Property during the Buyer’s Informational Access period.
  1. Stated Financing (¶6C) better explains that Buyer has the right to try to obtain financing other than as specified in the RPA but Buyer cannot cancel if that alternative financing cannot be obtained.  Seller cannot refuse to close simply because Buyer has obtained other financing.  Note:  If Buyer has an Investigation Contingency or the Informational Access right, then during that period of time, the Seller cannot refuse to allow an appraisal.
  1. Warranties (¶7D): The RPA now explains that Agents are not qualified to determine if warranties are assignable.
  1. Insurance:  Buyer’s inability to obtain insurance (or Buyer’s unwillingness to pay the insurance premium)  may justify cancellation based on the Buyer’s Investigation Contingency but not based on the Loan Contingency even if the Lender is using the inability to obtain insurance as a basis to deny the loan (¶8A-2).   
  1.   Appraisal Reports are now deemed by CAR (not because of any change in the law) as not being a report that the Buyer has to provide the Seller unless the Buyer is exercising their Appraisal Contingency Rights and the Seller requests the appraisal (¶8B-1) or the appraisal was done in connection with a VA or FHA loan (¶12D).
  1. In ¶14B-3, the “17 or ___ Days or 5 Days After Receipt of Seller Documents whichever occurs later” phrase merely establishes a time frame for the Buyer’s review contingency (¶8H); however, if the documents are delivered after the Buyer has removed that contingency, the late delivery of the documents does not revive the removed contingency nor create a new cancellation right.  Buyers who are upset about the late delivery of Seller disclosures, reports or other documents after they have removed the relevant contingency should be advised to immediately consult with a qualified California real estate attorney for appropriate advice as to what common law rights the Buyer may have to cancel the contract.
  1. Included/Excluded Items from Sale (¶9) are better defined in multiple respects:

a. Bathroom mirrors are pre-checked as included in the Grid (¶3P-1);

b. The Note in ¶9A was expanded to clarify that items listed in the TDS are not included in the sale unless specified in the RPA;

c. Window coverings are defined as including blinds, curtains, drapery, shutters or anything else that covers any portion of the window (¶9B-2) but related hardware (such as curtain rods and rings that do not cover the window) are not specifically included and Buyers who want that hardware should specify those items in the “other” blank line;

d. Pool/spa equipment is now defined as including pool cleaners, nets and covers (¶9B-2); and

e. Light bulbs include “smart” bulbs (¶9B-2).

  13. FIRPTA (¶11H and ¶19C): The RPA now makes it clear that if the Seller does not provide the Buyer with the Seller’s Taxpayer Identification Number and if the Escrow Holder fails to provide the Buyer with a QS signed under penalty of perjury as required by federal law, then the Escrow Holder must withhold the required taxes from the Seller’s proceeds.

14.  The effect of a Seller Removing Contingencies (¶14F-2) is now explained in the same way as the effect of a Buyer Removing Contingencies (¶14F-1).

15.  Cancellation (¶14-H):  A new important Note has been added:  Neither Agents nor Escrow Holder are qualified to provide any opinion on whether either Party has acted in good faith or which Party is entitled to the deposited funds.  Buyer and Seller are advised to seek the advice of a qualified California real estate attorney regarding this issue.

  1. Commission Instructions (¶19D): The irrevocable joint escrow instruction provision has been made stronger; the Buyer and Seller cannot change the amount of commission to be paid to the Brokers without the Brokers’ written consent.
  1. Authorized Agent (¶25E):  This new term is used to designate the individual Agent who can accept Delivery of documents on behalf of either the Buyer or Seller.
  1. Counting Days (¶25I):  This new provision explains how to count Days either before or after an event; the event (whether it is Acceptance of the Agreement, issuance of a Notice to Perform or COE) is deemed day “0”.  The first Day is thus the next Day (or the first Day prior to the event).  Hours are not used for any purpose.  The Day starts at 12:00 a.m. and ends at 11:59 p.m.
  1. Unless Otherwise Agreed (¶25O):  This frequently used term is defined to mean an agreement in writing that is signed by both Parties and Delivered to each.
  1.  Seller Rejection: In an effort to get more Sellers to confirm that the Buyer’s Offer has been rejected, the last Seller box now specifies that the Offer is “not Accepted.”

II.  QUICK SUMMARY OF THE OTHER CAR PURCHASE AGREEMENTS 

A.  Already-Built Subdivision Purchase Agreement (“ABSPA”): This new form is designed to be used with an already-built residence in a DRE-approved subdivision. It has been formatted to mirror the RPA but includes provisions for dealing with a Public Report and contains the procedures for construction defect claims.  Since this is new construction, both the Liquidated Damages and Arbitration provisions are subject to different statutory requirements and any Addenda must be approved by the DRE.

B.  Condominium Conversion Subdivision Purchase Agreement (“CCSPA”): This form was revised so that it is now formatted to mirror the new RPA but it functions in the same way as the current version of the CCSPA including the requirement that any Addenda must be approved by the DRE.

 C.  Commercial Purchase Agreement (“CPA”): This form was revised so that it is now formatted to mirror the new RPA but it functions in the same way as the current version of the CPA. The revised CPA includes better mechanisms for dealing with commercial topics such as inventory of personal property included in the sale (¶9B), current safety feature installation requirements (¶10B), tenancy-related disclosures (¶12) and the phase one environmental survey (¶15B).

 D.  New Construction Purchase Agreement (“NCPA”): This form was revised so that it is now formatted to mirror the new RPA but it functions in the same way as the current version of the NCPA. The revised NCPA includes several new attached disclosures (¶5B) and a better mechanism for dealing with an option deposit (¶6).

 E.  Notice of Default Purchase Agreement (“NODPA”): Aside from reformatting the NODPA to mirror the new RPA, no substantive changes were made to this form which is only used if all of the following four factors exist: (1) a Notice of Default has been filed; (2) the Property is residential 1-4; (3) the Seller resides in one of the units; and (4) the Buyer does not intend to occupy (Buyer is an investor).

 F.  Residential Income Purchase Agreement (“RIPA”): This form was revised so that it is now formatted to mirror the new RPA but it functions in the same way as the current version of the RIPA. The revised RIPA includes better mechanisms for dealing with an inventory of personal property included in the sale (¶9B), current safety feature installation requirements (¶10B), and tenancy-related disclosures (¶12).

 G.  Vacant Land Purchas Agreement (“VLPA”): This form was revised so that it is now formatted to mirror the new RPA but it functions in the same way as the current version of the VLPA but does a much better job in dealing with the various disclosures that Sellers must make (¶11) and the potential issues involved with rental/service agreements (¶12).

PRACTICE TIPS: 

  1. No contract summary, chart or grid can take the place of actually reading the entire agreement – please read all pages.
  1. Whether you are using the RPA or any of the other 7 CAR Purchase Agreement forms, before you start to write up a contract for a client, make sure that you are using the correct form and that you understand all of its provisions. It is true that “time is of the essence” in real estate but “haste makes waste”; prematurely filling out a form (or using the wrong form) creates tremendous risk for real estate Agents.
  1. Make sure that you use all of the forms that are pre-checked in the Purchase Agreements; they are auto-populated on the Zip platform when you use those agreements. 

 ATTORNEY-CLIENT PRIVILEGED COMMUNICATION: DO NOT FORWARD TO CLIENTS.  This Weekly Practice Tip 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.

© Copyright Broker Risk Management 2021            12/3/2021