BROKER RISK MANAGEMENT
WEEKLY PRACTICE TIP
QUESTION No. 1: The RPA form used for the presentation was from the 12/24 revision, not the 6/25. Was there a reason for that?
ANSWER No. 1: Yes. As we announced at the beginning of the webinar, because there were a small number of changes in the 06/25 revision of the RPA, we chose to use the 12/24 revision for the webinar because the many changes there were highlighted in red in that version. The only slides impacted by the 6/25 revision were slides 4 and 19 and we used that newer revision for those slides.
QUESTION No. 2: When is an agency disclosure required?
ANSWER No. 2: An agency disclosure, as set forth in Civil Code §2079.3, must be given to a buyer prior to executing a buyer representation agreement and given to a seller prior to executing a listing agreement.
QUESTION No 3: Many agents release the preliminary title report contingency based on the seller-provided preliminary title report included in the disclosure package. Are there any negative consequences to the buyer releasing this contingency on the seller-provided preliminary title report?
ANSWER No. 3: Assuming the seller’s preliminary title report is current and provided by the title company from whom the buyer is purchasing title insurance, the buyer may rely upon that preliminary title report. However, when a buyer opens an escrow, the title company generally provides the buyer with an updated preliminary title report. The best practice is that the buyer obtain an updated preliminary title report from the title insurer prior to releasing that contingency. Note that paragraph 8F(2) of the RPA provides: “Buyer has 5 Days after receipt to review a revised Preliminary Report, if any, furnished by the Title Company and cancel the transaction if the revised Preliminary Report reveals material or substantial deviations from a previously provided Preliminary Report.”
QUESTION No. 4: If a buyer has not removed their contingencies and cancels the purchase agreement, why would the buyer potentially risk losing their deposit?
ANSWER No. 4: The purchase and sale agreement, as well as California law, provide that a buyer and seller must act in good faith toward each other. Therefore, if a buyer is acting in bad faith, a buyer could jeopardize their deposit, even if their contingencies are in place. For example, if a buyer cancels a contract because a buyer finds a home they like better or is less expensive, a seller could contend the buyer is not canceling the contract based on any issue related to a contingency, but instead, the buyer is acting in bad faith.
QUESTION No. 5: Do we have to send the BRBC to the list side?
ANSWER No. 5: Not unless it is required by a counteroffer or other agreed upon term.
QUESTION No. 6: If an offer does not have a loan contingency, does the buyer need to include the maximum interest rate for the loan on the first page of the RPA?
ANSWER No. 6: No, but the buyer should specify the financing. Otherwise, the seller does may not have sufficient information to properly evaluate the offer. If there are competitive offers with more specification, the seller may be inclined to take a more detailed offer. Also, if the buyer states in their offer that the buyer is purchasing “all cash,” the seller can require the buyer to verify within 3 Days of Acceptance that the full purchase price plus closing costs are readily available. If the buyer cannot do so, the seller can cancel the contract after a Notice to Buyer to Perform. However, note that paragraph 6C states: “Seller has no obligation to cooperate with Buyer’s efforts to obtain any financing other than that specified in this Agreement but shall not interfere with closing at the purchase price on the COE date …even if based upon alternate financing.”
QUESTION No. 7: Regarding Paragraph 3.G.(3), I understood that the best practice was to request that the buyer’s agent provide a copy of the BRBC to show it is valid and the maximum compensation the buyer can legally receive. Are you now saying something different?
ANSWER No. 7: The RPA was modified to exclude the requirement that a buyer provide a copy of the buyer representation agreement to the seller. However, it is a recommended practice by listing agents that in a counteroffer the listing agent requests a copy of the BRBC. BRM suggests the following seller counter offer language: “Buyer must provide a fully executed copy of the buyer representation agreement immediately upon execution of this Agreement. If an agreement is not provided or is not valid, seller shall have no obligation to pay buyer’s compensation.”
QUESTION No. 8: Regarding Paragraph 3.D.(1), if the purchase price is negotiated to a higher amount in the counteroffer, does the deposit automatically adjust to reflect 3% or does the deposit remain as specifically included in the counteroffer?
ANSWER No. 8: Paragraph 1A of all CAR counter offer forms specify that, if the sale price is increased from the initial offer, the initial and any increased deposit remain unchanged unless that amount is specifically increased in the counter offer.
QUESTION No. 9: Regarding Paragraph 3.Q.(5) and (6), if I submitted an offer with both items checked that seller will pay for the FHDS and the FHDS is provided later in escrow with buyer responsibility checked, this is the opposite of the offer. Who pays for the FHDS?
ANSWER No. 9: Those are two separate provisions. Paragraphs 3Q(5) refers solely to who pays for government required “point of sale” reports; and 3Q(6) specifies which party pays for any corrective/remedial work required in those reports. The FHDS paragraphs 2, 3, 4A and 4B are seller questions requiring no payment by either party, while FHDS paragraph 4C, per statute, allows seller to pass any costs of compliance on to the buyer if the parties agree to the terms of the FHDS. So, this is not a “point of sale” requirement.
QUESTION No. 10: With regard to 3.Q.(6), stating who is paying for government required point of sale corrected/remedial action, is it sufficient to say, “subject to seller approval”?
ANSWER No. 10: No. This creates an ambiguity in the contract and may not be enforceable. However, because the dollar value of potential corrective/remedial work is unknown and could be unacceptable to the party paying for them, it is recommended that both listing agents and buyer’s agents have a discussion with your client that, if they are going to accept responsibility for 3Q(6) expenses, they consider a cap. For example, in an addendum to the RPA add: “Regarding Paragraph 3Q(6), (Buyer/Seller) agrees to be responsible for up to $______for the work required in the government report.”
QUESTION No. 11: I am the listing agent. We are having great difficulty obtaining any documents from the homeowners’ association. Do you have any recommendations for obtaining those documents?
ANSWER No. 11: Yes. Have the seller write a letter to the homeowners’ association requesting the documents and reminding the HOA that the HOA has a fiduciary and statutory duty to the seller. That generally forces the HOA into timely responding. See CAR form HOA-RS for a complete list of all documents that an HOA is obligated to timely deliver to their member, the seller.
QUESTION No. 12: Is it a better practice for an agent to order HOA documents or order them through a title company?
ANSWER No. 12: The best practice is for a seller to order the HOA documents from the HOA directly. An alternative can be ordering them through the title company. In either case, the buyer’s agent should verify that all required documents have been delivered using the HOA-RS form. If there are missing documents, buyer agent should ask the listing agent to arrange for the seller to obtain the missing documents or verify if they do not exist. It is not recommended that an agent contact an HOA for any reason.
WEEKLY PRACTICE TIP: DO NOT FORWARD TO CLIENTS. This Weekly Practice Tip is an attorney-client privileged communication 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 PC. 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 practice.