Writing A Real Estate Offer In California, Part 2

In Part 1 of this series, we laid out the financing aspects of the offer and the contingencies. In Part 2, we walk through the remainder of the offer contract. Our sample offer contract can be found here.

Once the inspections are done, many buyers will consider asking the seller for some kind of concession for repairs. These don’t always fly and many sellers state upfront that there will be no repair concessions considered. It’s all negotiated, but if you don’t find really big issues, don’t even ask if there are other buyers competing for the property.

Costs of inspections, reports, certificates and fees are technically negotiable as to who will pay the cost. Typically, buyers will pay half of the escrow and for their own inspections. Sometimes sellers will obtain inspection reports prior to listing and the buyer can choose whether to take those reports without paying or to hire their own inspectors.

Sellers typically pay half of escrow and to retrofit the property with smoke alarms, carbon monoxide detectors and water heater strapping. Other costs are government transfer fees and title policies. 

If there is anything the buyer wants included in the sale, like a particular chandelier or stand alone appliance, the item(s) is/are described in ¶8. Generally any built in items stay with the property unless specifically excluded in ¶8.C. Just because a buyer writes in an item, a seller can counter the item out of the offer. This paragraph also describes any leased systems such as solar panels.

Possession of the property at the close of escrow is defined in ¶9. Some sellers want to stay for a defined period of time, but this is only allowed if the buyer agrees. And if there is a lender involved, there may be further limitations on how long a seller can stay in the property because the buyer technically becomes a landlord to the seller and tenants can void certain mortgages. Property insurance may not cover tenants either. 

Where the property has a formal tenant (not the seller), that also has to be addressed in ¶9.

Paragraph 10 describes contract cancellation rights related to certain disclosures. 

Paragraph 11 is the paragraph that sellers point to if they don’t want to cooperate in making repairs. This paragraph says all properties are sold “as-is,” although a seller may not hide known defects.

Paragraph 12 describes the party’s obligations to cooperate in facilitating the buyer’s inspections. Sellers are protected from any damage or costs incurred during said inspections. 

Paragraph 13 describes the title insurance Preliminary Report to be provided to buyer. Seller has an obligation to disclose anything that might impact title, whether recorded or not. 

Paragraph 14 describes scheduling for receiving seller reports and disclosures. Buyer defines the inspection period. Seller can cancel escrow if buyer doesn’t lift the contract contingencies in a timely manner. Other impacts of cancelling escrow are described. 

The buyer has a right to walk through the property five days prior to closing escrow. This isn’t an “out” clause to kill the whole contract, but the buyer can delay the close of escrow if something is wrong with the property. If the seller has agreed to make repairs to the property, they should be completed prior to this walkthrough. 

Taxes, HOA assessments and certain other annual payments are prorated between buyer and seller, as set forth in ¶17.

Broker compensation and scope of duty are defined in ¶18. Paragraph 19 addresses parties to the contract who are acting in a representative capacity, such as trustees.

Parts of the contract become mutual instructions to the escrow agent, as described in ¶20. 

Paragraph 21 describes the consequences of the buyer breaching the contract. Paragraph 22 explains the dispute resolution process. Paragraphs 23-29 are miscellaneous explainer paragraphs. Paragraph 30 is important because it defines terms, including how to count days. Paragraph 31 defines the expiration date for the offer. There are some strategic reasons to play this paragraph different ways, but it’s optional.

And that is the offer/contract. Easy, right? It all makes sense if your eyes don’t glaze over first. 😁

At our shop, we’ll be asking you to electronically sign the offer and supporting documents. Electronic signatures are becoming more commonplace. The process is fairly straightforward, but always ask if you have questions. You can usually scroll the whole document to review it prior to signing. We will always make sure you get copies of signed documents. 

In Part 3 of this series, we’ll describe the supporting documents that get submitted with your offer.