Contracts & Forms

Real estate contracts welcomeIf you are home buying or selling in Silicon Valley, the odds are good that your area is one where the contracts and forms could be either the PRDS set or the CAR set.  Does it matter which one is used?

Weary home buyers who’ve written multiple offers on one set of forms would really prefer to not switch and suddenly need to learn a new set of terms, risks, and benefits that come with each.  The majority of Realtors representing sellers, who are listing agents, will accept offers on either one.  Not all will, though, so it’s important for the buyer’s agent to read the MLS instructions and to communicate with the listing agent ahead of time to make sure.

There are many differences between the PRDS and CAR real estate contracts.  The biggest one is that the PRDS contract by default requires that the property be delivered to the buyer in a certain conditon (unless the As Is box is checked) while the CAR contract is by default an As Is agreement. But there are many other issues too.

These contracts also reference other forms from their same set of documents which will be important to the sale.  For instance, the CAR contract requires that the seller fill out a particular disclosure form along with the Transfer Disclosure Statement:

10 A (4)  Within the time specified in paragraph 14A, (i) Seller, unless exempt from the obligation to provide a TDS, shall, complete
and provide Buyer with a Seller Property Questionnaire (C.A.R. Form SPQ)

The PRDS contract, by contrast, requires the PRDS Supplemental Seller’s Checklist.  They are not interchangeable unless all parties agree in writing to the substitution.

If a seller’s disclosures are all on PRDS forms, it’s easy to infer that the seller or listing agent prefers offers on the PRDS contract OR that adjustments may need to be made to keep the seller from having to fill out yet another form after completing the presale disclosure package. Otherwise, giving a CAR offer on a listing where PRDS disclosure forms have been used puts an obligation on the seller to complete another new disclosure.  At best, this may generate a counter offer from the seller. If your offer is neck and neck with another, this could potentially harm your negotiating position in a multiple offer situation.

 

Related reading – older articles (the forms have changed a little since these were written):

Did You Know that You Have a Choice in Which Forms Are Used to Buy & Sell Homes in Silicon Valley? (2009, this blog)

What is the difference between the CAR and PRDS purchase agreements? Does it matter which contract is used? (2011, this blog)

 

Market activity in Santa Clara County:

  1. 5 beds, 4 baths
    Home size: 3,308 sq ft
    Lot size: 1.44 ac
  2. 3 beds, 2 baths
    Home size: 1,507 sq ft
    Lot size: 7,980 sqft
  3. 2 beds, 1 bath
    Home size: 1,000 sq ft
    Lot size: 2,243 sqft
  4. 3 beds, 3 baths
    Home size: 1,318 sq ft
    Lot size: 527 sqft
  5. 4 beds, 6 baths
    Home size: 4,000 sq ft
    Lot size: 37,339 sqft
  6. 4 beds, 4 baths
    Home size: 2,828 sq ft
    Lot size: 8,054 sqft
  7. 3 beds, 2 baths
    Home size: 1,593 sq ft
    Lot size: 11,626 sqft
  8. 3 beds, 2 baths
    Home size: 2,023 sq ft
    Lot size: 7,753 sqft
  9. 3 beds, 3 baths
    Home size: 2,026 sq ft
    Lot size: 3,384 sqft
  10. 4 beds, 3 baths
    Home size: 2,400 sq ft
    Lot size: 6,503 sqft

See all Real estate in the city of Los Gatos.
(all data current as of 10/23/2017)

Listing information deemed reliable but not guaranteed. Read full disclaimer.

Questions that the disclosures raiseWhen in doubt, disclose” is the advice that real estate and legal professionals use as a guiding principal in home sales.  And yet many sellers forget or miss things that should be told to the buyer, and some listing agents are a bit sloppy in reviewing their clients’ disclosure paperwork.  It is not uncommon to see questions unanswered or only partially answered.  The home owner may presume that if the disclosure paperwork was done wrong, the Realtor hired to help market and sell the home will catch it.  Would that it were so, but too often, that is not the case.

To avoid problems later, whether small or big, it is best to be thorough and careful while making your disclosure.

Small problems are created by seller (and listing broker) omissions when the paperwork gets kicked back for clarification or to complete the needed response.  Bigger problems are forged when a sale is nearly closed and a new disclosure is made – introducing a brand new 3 day “right of rescission” for the home buyer.  Worse yet is something substantial which is only brought to light after the close of escrow.  At that point, it’s not an inconvenience, it risks being costly and time consuming to resolve it.

The State of California requires that the Transfer Disclosure Statement or TDS be filled out in most realty transactions.  The intention of the form is to help you, the property owner, to disclose anything materially impacting value or desirability.  That’s a tall order to fill, so other forms have been created to supplement the TDS, which has pretty much become Step #1 for disclosing defects and other issues to buyers.

What kind of things are often skipped in the real estate disclosure paperwork?

On the TDS, a very common error involves the question as to whether Continue reading

Question_markIf you are purchasing a home in Silicon Valley, and you’re fortunate enough to be “in escrow”, will you be counting the calendar days or the business days to know when something is due?

Most of the time, it will be calendar days.  But not always.  I’ll explain.

First, I have to mention that in Santa Clara and San Mateo Counties, we have two different sets of real estate forms in use and they do not handle this issue of days exactly the same.  The PRDS contract is found primarily on the Peninsula and following the coastal range south through Cupertino, Saratoga, Monte Sereno, and Los Gatos.  In most other places, though, the CAR contract is usually used.   For more information on the contract differences, please see What is the difference between the CAR and PRDS purchase agreements? Does it matter which contract is used? – though the forms have been updated since then and some of the differences may have changed some.)

There are a lot of dates that get tracked in both contracts: the amount of time for getting the initial good faith deposit to escrow (a title company is the norm here for escrow); the number of days the seller has to provide the buyer all disclosures, reports, and other info; the length of time (if any) for the buyer to remove contingencies, the date of closing, and more.

Initial deposit:  for both, 3 business days is the norm, but it is possible to change it to make it faster or longer (but if longer, it’s wise to have a really good reason)

Removal of contingencies:  PRDS is strictly calendar days.  CAR is calendar days unless they fall on a weekend, in which case it rolls to the next business day.

The real estate purchase contracts, and related addenda, disclosures, etc., changes frequently.   When there is a change, Realtors usually know about it via their real estate board, their office, and often from the marker of the forms.

Where to watch out (for Realtors especially):

If you or your agent is used to one of these sets of forms and suddenly need to use the other, Continue reading

Rent back forms varyIf you are buying or selling a home in Silicon Valley today, you may be considering including the option to have a “seller rent back” after close of escrow.  What does this mean?  This is often referred to as “seller in possession after close of escrow” or “seller occupancy after sale” and it’s very common in the San Jose or San Francisco Bay Area now.

Most of all, a rent back means that after the seller(s) no longer owns the property, he / she / they stay on as tenants.  The new owner needs to have home owner’s insurance (which will be mandatory if there is a mortgage – the lender will insist).  The new owner becomes a landlord and, as such, gets a set of keys at the close of escrow.

Second, it means that there will be a separate addendum for the tenancy.  Depending on how long the term will be (less or more than 30 days) and which purchase agreement form is used (PRDS or CAR), the paperwork varies a bit.

Naturally there are a number of terms in the lease or rental agreement.  Among them are these:

  • Amount of security deposit, if any
  • Amount of rent being charged, if any
  • Term of the rent back or lease (most buyers have loans, and most lenders do not permit more than 60 days or they consider the property “non owner occupied” and charge a higher rent”)
  • Who will pay for things like gardening, utilities, pool maintenance, and HOA fees, if any
  • Who will hold the deposit (the buyer or the escrow company?)
  • Under what circumstances the new owner can enter the property

When the market is super over-heated, we tend to see nominal security deposits and free rent backs or no-cost rent for 30 or 60 days.  Usually the tenant takes care of utilities, garden, pool maintenance. Continue reading

What is a contingent offer?What is a contingent offer? A contingent offer is a contract on residential real estate which is based on the contingency of or subject to the sale of another property.

A contingency is a way out of the contract. If   “xyz” doesn’t happen, then someone (whoever has the contingency) can get out of the obligation to complete the sale. For example, a loan or financing contingency is very common when someone buys a home. But if the loan falls through, at least under some circumstances, the buyer can back out with little or no consequence.

Most of the time, the buyers have the normal contingencies relating to financing, appraisal, property condition, title documents, and related items (approval of the CCRs, HOA docs if any, lead paint tests and more).  Sometimes the seller has a contingency (finding a replacement property, selling short and needing bank approval, or in the case of a sale after death perhaps the approval of the trustees or a right of first refusal of close relatives to purchase the house). Once in awhile, though, there is a sale subject to the sale of another house.  Often this is referred to as a “contingent sale”, even though most offers have some contingencies. We do not see these kinds of purchase agreements accepted too often in the current market in Silicon Valley.

To muddle things a bit, recently our local multiple listing service, MLSListings.com, recently eliminated the sale pending or under contract status that had been associated with either the contingency to sell another property (formerly “status 2”).  We used to have 3 types of pending sales – contingent (status 2), pending (status 3, normal contingencies in place) and sold but not yet closed (status 4, all contingencies are removed).  I don’t know why we now have just “contingent sale” and “pending sale”, but I think it was a terrible idea.

Contingent offers: they are not all the same!

A contingent offer in the San Jose or Los Gatos area may come at any stage of the home selling business:

  1. the home may not yet be on the market
  2. the house may be on the market but not yet under contract
  3. the property may be on the market and sale pending (under contract), but the buyers’ contingencies are still in place
  4. the property is on the market, in escrow (under contract) and contingencies are all removed – it is close to closing escrow

As you can imagine, there are varying degrees of risk involved with a Santa Clara County home seller accepting contracts with these various scenarios. The closer a property is to closing, of course, the more likely it is to close and the smaller the risk.  If it is not yet even on the market, the risk is far greater. Continue reading

Offer checklist for some listing agents in Silicon Valley

For a long time, Silicon Valley real estate agents have expected home buyers to be preapproved, not just prequalified, for a mortgage or loan when they submit an offer to buy a property.  So the offer package would consist of an agency disclosure, the contract (PRDS or CAR), and a preapproval letter from the home buyer’s lender.  (Some listing agents require the buyer to be preapproved with the listing agent’s lender. This is especially true with REOs.)

Over time, a few disclosures got signed to go with the submission, too – such as one on the dangers of writing non-contingent offers, another on brokers potentially submitting offers for competing buyers, etc.

When the market gets overheated, as it is now, listing agents begin to require even more things upfront, with the offer – not after it’s been accepted.   In many cases, listing agents want all disclosures signed upfront, plus the covers of any inspections.  This often means initialing and signing 60+ pages.

Cash offers traditionally come with “proof of funds”.  That means bank statements or eTrade or other statements proving that you’ve got the money.  Sometimes it’s a portfolio showing how much stock one owns. (Last week I got 22 offers on a listing and one agent, who”s been in the business for decades, showed me his preapproval letter when I asked for the proof of funds. He didn’t understand.) Naturally, we black out or white out or otherwise obfuscate the account numbers for safety’s sake.  In recent years, though, the strongest offers come with proof of funds no matter the size of the down payment.  Many Realtors in the San Jose, Los Gatos, and Saratoga areas expect it.

Buyer’s agent: do your visual inspection upfront, too….

Continue reading

Can you change your offerWith multiple offer situations in Silicon Valley real estate bids, sometimes buyers write an offer and later decide that it’s too much or too little, or that some other change is warranted.

Can you change your offer after it’s written, or is it a “done deal” once you’ve signed it?

The good news is that you can change your offer. Many buyers do, either because they changed their mind or strategy, or because they just got new information.

Recently some of my buyers were bidding on a San Jose home. As I asked the listing agent more questions and we got a little more information from that agent on the numbers of offers being received, my clients wanted to improve their offer. We redid page 1 of the contract, which is where all the financial basics are listed. Their improved offer went to the listing agent and it was seamless.

At other times, even after the offer is submitted, I have had buyers ask to improve their offer. The pages of the contract which were involved in the change were redone, signed and resubmitted. This is a bit like going through the counter offer process yourself. Continue reading

A year or so ago, I attended a 2 day negotiation class in Los Gatos. It was quite good! At one point, we discussed negotiating offers in a buyer’s market and how challenging it can be to get showings and offers at all. The topic of a “reverse offer” came up next.

A reverse offer is when a home seller initiates negotiations with a buyer by drafting a purchase agreement. Yes, this is backwards!  The seller may not know the buyer’s ability to pay, what type of loan it could be, or even the prospective buyer’s name! The idea is that if buyers are on the fence, this may get the ball rolling. Only seldom does it result in an immediate agreement. More often, it’s either rejected outright or countered. Or perhaps the buyer and the buyer’s agent will draft a whole new contract. But it may be a useful strategy if a property is not selling and there seems to be interest from buyers who aren’t going to the next step of putting an offer in writing.

Related reading:

What is the difference between the CAR and PRDS purchase agreements? Does it matter which contract is used?

What is a sharp offer or relative bid?

What is a blind real estate offer?

Q & A on making an offer (on my popehandy.com website)

  1. 3 beds, 2 baths
    Home size: 1,507 sq ft
    Lot size: 7,980 sqft
  2. 2 beds, 1 bath
    Home size: 1,000 sq ft
    Lot size: 2,243 sqft
  3. 3 beds, 3 baths
    Home size: 1,318 sq ft
    Lot size: 527 sqft
  4. 4 beds, 6 baths
    Home size: 4,000 sq ft
    Lot size: 37,339 sqft
  5. 4 beds, 4 baths
    Home size: 2,828 sq ft
    Lot size: 8,054 sqft
  6. 3 beds, 2 baths
    Home size: 1,593 sq ft
    Lot size: 11,626 sqft
  7. 3 beds, 2 baths
    Home size: 2,023 sq ft
    Lot size: 7,753 sqft
  8. 3 beds, 3 baths
    Home size: 2,026 sq ft
    Lot size: 3,384 sqft
  9. 4 beds, 3 baths
    Home size: 2,400 sq ft
    Lot size: 6,503 sqft
  10. 5 beds, 6 baths
    Home size: 7,313 sq ft
    Lot size: 1.00 ac

See all Real estate in the Los Gatos/Monte Sereno community.
(all data current as of 10/23/2017)

Listing information deemed reliable but not guaranteed. Read full disclaimer.

Where have all the offers gone?Real estate agents from Santa Clara and San Mateo Counties are relaying that although it’s still a strong seller’s market, they are seeing fewer numbers of offers.  Where there used to be perhaps a dozen bids, now maybe there are 5.  For properties that might have gleaned six offers in March, now there are 2 or 3.  Even with just three offers, overbids are the norm and frequently, the successful bidders are the ones going in with few or no contingencies for loan, appraisal or inspection.  (That’s not a safe practice and not recommended, but the reality is that sellers want to know that once’s it’s sold, it is going to close for sure – so they pick the buyers who will take on all the risk and who also bring in the best price.)

And, as before, not every home gets multiple offers.  Some get no contracts at all.

There’s so much hype about the multiple offers and overbids and bidding wars that many Silicon Valley home owners have unrealistic expectations regarding the summer real estate market and find themselves very disappointed with the results of their labors in getting the property to market.

Unfortunately, our multiple listing service, MLSListings.com, does not track the numbers of offers, so we do not have an official way of measuring what’s happening with this particular factor.  Networking with other agents, writing and receiving offers, though, Realtors are “boots on the ground” and can gauge the market with issues like this before the impact shows up in other measurable data such as the sale price to list price or days to sell.

Sellers, don’t worry – it is still a fine time to sell your San Jose, Los Gatos or nearby home.  It is very important to work with a great realty professional who will guide you on pricing, staging, showings, and every other facet so that you maximize your net takeaway in this market.  Some home owners will be unrealistically optimistic about the market conditions and will overprice their homes.  Don’t be that seller who gets set up for failure in a market where success is probable.  Understand that summer markets are usually cooler than spring and that getting things right is more important now that there is less buyer interest.  One good offer is all it takes, but if you can get two or three, you should be set up for a happy ending.

  1. 2 beds, 2 baths
    Home size: 913 sq ft
    Lot size: 914 sqft
  2. 3 beds, 2 baths
    Home size: 1,723 sq ft
    Lot size: 5,884 sqft
  3. 0 beds, 0 bath
    Home size: 2,295 sq ft
    Lot size: 6,599 sqft
  4. 3 beds, 2 baths
    Home size: 1,444 sq ft
    Lot size: 8,751 sqft
  5. 3 beds, 2 baths
    Home size: 1,312 sq ft
    Lot size: 5,998 sqft
  6. 4 beds, 3 baths
    Home size: 2,198 sq ft
    Lot size: 6,202 sqft
  7. 3 beds, 2 baths
    Home size: 1,841 sq ft
    Lot size: 5,723 sqft
  8. 3 beds, 1 bath
    Home size: 897 sq ft
    Lot size: 7,148 sqft
  9. 2 beds, 3 baths
    Home size: 1,280 sq ft
    Lot size: 705 sqft
  10. 4 beds, 3 baths
    Home size: 2,223 sq ft
    Lot size: 3,232 sqft

See all Real estate in the Santa Clara community.
(all data current as of 10/23/2017)

Listing information deemed reliable but not guaranteed. Read full disclaimer.

Silicon Valley home sellers may find themselves exhausted by their move and wonder if they can leave trash or other debris behind when they move out.  Most of the time, San Jose area home buyers aren’t thrilled with this idea (though there are exceptions).  The main thing is this: what does the contract say?

Both the PRDS and CAR contracts do address this issue of what can be left behind.  First, here’s the CAR paragraph on this topic:

CAR on removal of debris at close of escrow

And here’s what the PRDS purchase agreement says:

PRDS on removal of debris at possession

Both of them say that debris must be removed either at the close of escrow, or if there’s a rentback, when the buyer takes possession.

That said, sometimes buyers will write into the contract that the seller is allowed to leave behind debris.  Why would they do this?  If it’s multiple offers, making the move easier on the seller may increase the odds of getting the offer accepted.  Or perhaps the buyers just really want the ‘stuff’ in the garage.  I’ve seen it happen.

Either way, if you are buying or selling a home, it’s important to read and understand your obligations and rights.  The final walk through can be an opportunity to point out debris that may be a concern, among other things.  Best to not wait until after closing, if possible, to find things for the seller to do.

  1. 2 beds, 1 bath
    Home size: 798 sq ft
    Lot size: 6,825 sqft
  2. 2 beds, 2 baths
    Home size: 1,442 sq ft
    Lot size: 2,204 sqft
  3. 2 beds, 2 baths
    Home size: 1,679 sq ft
    Lot size: 2,134 sqft
  4. 2 beds, 2 baths
    Home size: 946 sq ft
    Lot size: 6,494 sqft
  5. 4 beds, 3 baths
    Home size: 4,170 sq ft
    Lot size: 1.10 ac
  6. 5 beds, 3 baths
    Home size: 2,217 sq ft
    Lot size: 8,171 sqft
  7. 3 beds, 3 baths
    Home size: 1,704 sq ft
    Lot size: 5,301 sqft
  8. 4 beds, 4 baths
    Home size: 3,032 sq ft
    Lot size: 11,878 sqft
  9. 2 beds, 1 bath
    Home size: 880 sq ft
    Lot size: 5,384 sqft
  10. 3 beds, 3 baths
    Home size: 1,471 sq ft
    Lot size: 1,768 sqft

See all Real estate in the city of San Jose.
(all data current as of 10/23/2017)

Listing information deemed reliable but not guaranteed. Read full disclaimer.

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Mary Pope-Handy
Realtor
ABR, CIPS, CRS, SRES
Sereno Group Real Estate
214 Los Gatos-Saratoga Rd
Los Gatos, CA 95030
408 204-7673
Mary (at) PopeHandy.com
License# 01153805


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