Here’s an interactive glossary of key terms commonly found in a California Residential Purchase Agreement (RPA). This document is central to any real estate transaction, outlining the terms of the sale between buyer and seller.
1. Purchase Price
- The total amount the buyer agrees to pay for the property. This includes the initial offer price and any negotiated changes during the transaction.
2. Earnest Money Deposit (EMD)
- A good faith deposit submitted by the buyer, demonstrating their serious intent to purchase. Typically 1-3% of the purchase price, it’s held in escrow until closing or returned if the deal falls through under certain conditions.
3. Escrow
- A neutral third party that holds funds and documents during the transaction. Escrow ensures that all terms of the purchase agreement are met before the sale is finalized.
4. Contingencies
- Loan Contingency: Protects the buyer if they cannot secure financing within the agreed-upon period.
- Appraisal Contingency: Allows the buyer to renegotiate or cancel if the home’s appraised value is lower than the purchase price.
- Inspection Contingency: Gives the buyer the right to conduct a home inspection and request repairs or back out if major issues are found.
5. Close of Escrow (COE)
- The date when the transaction is finalized, and ownership officially transfers to the buyer. This is usually set for 30-45 days after the offer is accepted but can vary.
6. Seller Disclosures
- Documents the seller is legally required to provide, informing the buyer about any known issues with the property. These may include a Transfer Disclosure Statement (TDS), Natural Hazard Disclosure (NHD), and others, depending on the property’s location and condition.
7. Title Insurance
- A policy that protects the buyer (and lender) from any legal claims or disputes over the ownership of the property. It ensures that the title is free and clear of any encumbrances.
8. Homeowners Association (HOA)
- If the property is in a community governed by an HOA, the agreement includes details about the HOA fees, rules, and required documents, including Covenants, Conditions, and Restrictions (CC&Rs).
9. Termite Inspection
- A report detailing any damage or infestation caused by termites. In California, this is often part of the inspection contingency. The buyer may request the seller to address any issues found in this report.
10. Repairs and Credits
- During the inspection period, buyers may request repairs or ask for a credit towards closing costs instead. The seller can agree, negotiate, or decline.
11. Prorations
- Certain expenses, like property taxes, HOA fees, or utilities, are prorated between the buyer and seller. This ensures each party pays only for the time they owned or occupied the property.
12. Financing Terms
- Specifies how the buyer will pay for the property, including whether it’s an all-cash offer or involves financing, the type of loan (e.g., FHA, VA, or conventional), and the loan amount.
13. Property Condition
- The agreement outlines how the property should be delivered to the buyer, often stating it must be in substantially the same condition as when the offer was made.
14. Possession
- Details when the buyer will take possession of the property, typically at the close of escrow. In some cases, the seller may remain in the property for a short period after closing, under a rent-back agreement.
15. Dispute Resolution
- Outlines the process for resolving any disputes that arise during the transaction. This often includes a mandatory mediation clause before proceeding to arbitration or litigation.
16. Liquidated Damages
- A clause stating that if the buyer defaults, the seller may keep the earnest money deposit as compensation for the lost time and opportunity to sell.
17. Breach of Contract
- If either party fails to meet their obligations as outlined in the agreement, they may be considered in breach of contract. This can lead to termination of the agreement or legal remedies.
18. Agency Relationship
- This section discloses the role of the agents involved, clarifying whether they represent the buyer, seller, or both (dual agency). California law requires this disclosure to ensure transparency.
19. Addenda
- Any additional documents or agreements that modify the original terms of the RPA. Common addenda include those for financing, appraisal, or home sale contingencies.
20. Counter Offer
- If the seller (or buyer) wants to modify the original terms of the offer, they issue a counter offer. This changes specific conditions, like price, contingencies, or closing dates.
21. Inspection Period
- A defined period during which the buyer can conduct various inspections (e.g., general home, pest, roof, etc.) and due diligence on the property.
This glossary outlines the most critical elements of a typical California Residential Purchase Agreement (RPA). Understanding these terms ensures a smoother transaction for all parties involved. Please reach out to me if you need clarification of any part of the purchase contract.
