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Residential Purchase Agreements to be updated

The California Association of REALTORS is rolling out a multitude of changes to the California Residential Purchase Agreement in November. While most are insignificant, several substantive changes will affect real estate agents.

June Barlow, general counsel for CAR, said the loan contingency section is an area of substantive change.

Instead of buyers having the option either to remove the loan contingency within 17 days or wait until they get the loan, the timeframe is increasing to 21 days. The option of waiting for the loan is no longer available.

“What’s changed is that second option is no longer there — they have to remove the contingency within a certain amount of days,” said Gov Hutchinson, assistant general counsel to CAR. “So the default number has changed and there’s not that second option of funding.”

Also, the loan contingency segment will no longer be wrapped up with the appraisal contingency. Currently, if you remove the loan contingency, the appraisal contingency goes with it.

“On the new form, they’re completely distinct — the contingency loan and appraisal,” Hutchinson said. “It’s going to say 17 days to remove the appraisal contingency, as opposed to 21 to remove the loan contingency.”

Another change that will affect Southern California agents in particular is that termite inspection will receive the same treatment as other inspections, instead of being written into the contract.

“Unfortunately, when the termite clause is in the agreement, the buyer and seller have agreed to basically writing a blank check,” Barlow said. “Now the buyer can still have this inspected, but when the seller agrees to it, they’ll have an idea of what it will cost.”

Barlow said this isn’t usually a problem, but can cause major conflict.

The cancellation of deposits procedure is also changing, in order to ensure that funds don’t sit in limbo when one party is too angry to sign mutual cancellation instructions.

“When someone cancels the transaction, it’s never pleasant. The seller may be entitled to keep the deposit, but sometimes not,” Barlow said. “This forces you to say ‘no’ or ‘yes,’ which makes sense, but this way you don’t have it in limbo because someone refuses to do what they’re supposed to.”

Many of the changes, which are increasing the length of the agreement from eight to 10 pages, are being made to modernize and formalize items that, like the cancellation of deposits update, simply make sense. For example, the updated agreement will integrate phone or communication systems, as well as leased property such as solar panels, into the agreement.

“You will have to disclose and be clear about what is leased and what is not owned,” Barlow said. “This is currently not expressed, so the document is being updated with what’s going on in the market — there’s a lot of people marketing integrated home and phone systems ... these will now be listed in the agreement, which will also have to of course give permissions and passwords to actually use them — we like to prevent disputes.”

In addition to these substantive updates, Barlow said there are many smaller warnings, modifications and reorderings. She said CAR automatically changes the document when relevant laws are updated, but waits until there are enough auxiliary modifications for a full-on revision.

“It’s been a while since we’ve done this many changes,” she said. “We collect comments all the time and have a standard place where members, lawyers, anybody can send comments.”

A committee of lawyers and practitioners reviews the comments, and when necessary changes reach a critical mass, it’s time for a revision.

“We waited 10 years once and that was too long — it’s one of those things, where are there enough suggestions to warrant putting everybody through it?” said Barlow. “Because it takes about 18 months for everybody to be entirely comfortable with the updates — we don’t do it lightly or quickly.”

CAR and local associations are holding workshops and classes on the updated RPA. The Pacific Southwest Association of Realtors held a class Tuesday, and the Greater San Diego Association of Realtors is hosting an event Sept. 12 with Kathy Mehringer, chair of the RPA Committee.

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