Question: I represent the Seller. The Seller accepted another Broker’s offer written on a CAR Residential Purchase Agreement form (“RPA”) which had a 10-Day inspection contingency period. Immediately after the Purchase Agreement was fully signed, the Buyer’s Agent called to schedule an inspection; the date we agreed upon was 3 calendar Days after Acceptance.
When the Buyer and his inspector showed up at the Property on the agreed-upon date, the Seller refused to allow access – she said that since the Buyer’s Earnest Money Deposit was not in Escrow, there was no contract. She said her family’s elderly attorney had told her that since there was no contract, she was not obligated to allow the Buyer to access her Property.
The Buyer’s Agent was furious and is making threats; the Buyer has been told to get an attorney. The Seller wants me to tell the Buyer’s Agent that there is no deal. What do I do now?
Answer: The information that has been provided to the Seller by her “family’s elderly attorney” is one of the many reasons why clients should only obtain advice about real estate transactions from a qualified California real estate attorney, especially one who is familiar with the provisions in a standard residential purchase agreement such as the CAR RPA.
Bottom line: The Seller needs to be advised, in writing, such as an email, to immediately consult with a qualified California real estate attorney to protect her interests because there is a contract and the Seller may be in breach of that contract.
I. Is there a Contract if the deposit was not put into Escrow?
A. The Historical Approach: No. When the purchase agreement forms provided that the Buyer must make an Earnest Money Deposit (“EMD”) as consideration for entering into the contract, then there is no contract until the Buyer’s money is in Escrow. Sadly, many people continue to use the term Earnest Money Deposit and thus there is confusion.
B. The Modern Approach: YES. Today’s standard purchase agreement forms used by REALTORS® do not even mention the term EMD. Instead, the contracts specify that the Parties are agreeing to have the Buyer make an “Initial Deposit.”
All three of the California purchase agreement forms define the term “Acceptance” as the mutual signing of all written contract documents and the Delivery of those signed documents to the Parties. The moment that there is Acceptance, there is a contract and all of the obligations specified in that Agreement commence, including, but not limited to, the Buyer’s obligation to put the agreed-upon deposit into Escrow within 3 business days.
If the Buyer has failed to make the initial deposit within the agreed-upon time frame, the Seller needs to issue a Notice to Buyer to Perform.
Note: The definition of the term “Acceptance” can be found in ¶20A of the CAR RPA; ¶29F of the PRDS® Real Estate Purchase Contract; and ¶40 of the SFAR Purchase Contract.
II. Must the Buyer wait to do their inspections until after the deposit is in Escrow?
A. The Historical Approach: Yes. If there is no contract because there is no EMD, then the Buyer does not have a right to do anything until the money is in Escrow.
B. The Modern Approach: NO. The timing of the Buyer’s various rights, duties and obligations are based upon an agreed-upon period of time that starts “after Acceptance.”
The Buyer has 3 business days after Acceptance to make the initial deposit. The Buyer’s investigation/inspection contingency also starts after Acceptance. There is nothing in the standard contract forms that mandate which obligation must occur first. Thus, the Buyer can commence inspections at any time during the agreed-upon contingency period, including the time period before the initial deposit is made.
III. Is the Seller obligated to allow access to the Buyer? YES. All of the standard purchase agreement forms specify that, at the very least, the Seller must allow reasonable access for the Buyer’s inspections.
Even if the Purchase Agreement did not specify that the Seller must allow access, under common law principles, the Seller cannot interfere with the performance of the Buyer’s agreed-upon rights; to do so could be a breach of contract or repudiation of the contract.
Note: The Seller’s obligation to allow reasonable access to the Buyer can be found in ¶12B and ¶14B(5) of the CAR RPA; ¶16E of the PRDS® Purchase Contract; and ¶12 of the SFAR Purchase Contract.
PRACTICE TIPS:
- The Seller’s Agent should advise the Seller, in an email, that she is “facing potential liability if she continues to prevent the Buyer from inspecting the Property as specified in the Purchase Agreement.” The best practice is to attach a copy of the Purchase Agreement with the relevant paragraph(s) highlighted or insert a screen shot of the relevant paragraphs into the email.
- The Seller’s Agent should advise the Seller to retain the services of a qualified California real estate attorney before taking any further action, including any attempt to advise the Buyer’s Agent that “there is no deal” or to otherwise try to cancel the contract. If the Seller ignores that advice, then document that the Seller is not following the Agent’s advice.
See: How to Handle Clients Who Will Not Follow Advice? 11-16-18
- The Seller should be asked to give the Seller’s Agent any further instructions in writing before giving any information to the Buyer’s Agent.
WEEKLY PRACTICE TIP: 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.
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