Real estate contract decisions

Real Estate Contract Decisions - two women drafting an offerThe real estate contract decisions faced by home buyers include the price and terms – and terms are basically “everything else” beyond the price.

Real estate contract decisions – price and terms

Assuming that you are pre-approved for a mortgage and that you are are working with a great Realtor or real estate licensee (those should be your starting point), you’ll have a number of things to address and choices to make involving price and terms.  The next is to find out if there will be multiple offers or not – your agent should call the listing agent to inquire.  That is a game changer so should be done upfront. Here are a few of the basic considerations.

1. FORMS Most listing agents prefer the CAR contract, but some may request that offers be written on PRDS forms. Will you draft your offer on the CAR or PRDS contract?

This is perhaps the first “term” to be considered.  In general, this decision is influenced by geography: the “west valley” communities from Almaden or Los Gatos on the southern end up to Redwood Shores or a bit further north will tend to use the PRDS contract.  Most of San Jose, Santa Clara, Milpitas and so on will usually prefer the CAR contract.

If you have written a couple of offers on one of them and then shift to the other, this can be unsettling. Talk with your agent about this decision.

2. TIME / DEADLINES Some of the most important terms among your real estate contract decisions are the timeframes. Other terms matter, such as having a pre-approval letter and providing all the required documentation, such as the proof of funds.  Contingencies are also hugely important terms. Today most sellers want to see no contingencies. That doesn’t always happen, though.

Verbal offers to buy real estate are a bad idea

Verbal offers - are they real? Image of a house with those words and a real estate agent on the phone in front3What  are verbal offers to buy a home?

Simply put, these are when a home buyer and his or her or their agent write up a bid on a proper form such as the PRDS or CAR contracts, but orally or otherwise casually tells the seller or the listing agent of a price that the buyer would offer for the property.

  • Communication from a buyer or buyer’s agent that the client would like to purchase the property for a particular amount of money.
  • Sometimes they also include some of the contract terms, such as “all cash offer” or “no contingencies” or “30% down”.
  • Most of the time, the buyer doesn’t want to spend the time to write it up unless there’s a verbal assurance that the seller will accept the offer.
  • With a verbal offer (which could be in person, by phone, by email, by text, etc.), there’s no proof of anything – no proof of funds, proof that the disclosures have been reviewed, and so on.

This is a terrible idea, whether you’re a buyer or seller.  But why?

Verbal offers are not serious offers

First, there are a LOT of terms in the offer besides just the price.  They include things like the loan amount and percentage (80% loan to value ratio or something else), the amount of the initial deposit and when it will go to title, whether the buyer is preapproved or not, the number of days for various contingencies, how long the escrow should be, what personal property should be included, and much more.

Often those terms are extremely important.  Consider just one: all cash versus financed!  Verbal offers are usually only the price being floated by.

Written offers, not verbal offers, come from committed home buyers

If a home buyer is sincere and serious about purchasing property, he or she will get it in writing and be specific about the myriad of terms that are part and parcel of the agreement. A seller cannot fairly even consider a verbal offer because so many of the terms are simply missing in action.

What happens during a seller rent back?

When a home seller remains in the home after the close of escrow, it’s as a tenant or renter – even for a brief period of a few days.  With the shifting role from home owner to new renter, the rules of engagement may not be clear, and expectations may not line up with the addendum for the rent back.   So let’s do a set of what happens during the tenancy period after the sale is done.

Seller rent back True or False questions – which of these statements is true or false for the period when the seller is a tenant?

  1. When escrow closes, the buyers get keys to the home
  2. The seller must be undisturbed by the buyer until moving out
  3. The buyer can do repairs, including fumigation, during the rent back
  4. Prospective tenants may view the property during the rent back
  5. Contractors may enter the property during the rent back
  6. The new owners must give 72 hours notice before entry
  7. To enter the home, new owners must use an official CAR or PRDS “Notice of Entry” form
  8. The new owners may only enter the property if their Realtor is present or if the listing agent is present
  9. If the seller overstays the agreed upon rent back time, there’s a penalty fee that will be charged
  10. If there’s a rent back, buyers may do a walk through both before close of escrow and also at the end of the rent back period.


What does the paperwork saySome of these are challenging not just for buyers and sellers, but for real estate agents too. The reason for the confusion has to do with the number of forms involved.  There are 3 different rent back addenda which may be employed in Silicon Valley: 2 options from the California Association of Realtors (CAR) and 1 from the Peninsula Regional Data Service (PRDS).

  • PRDS form RSOAS – Seller Occupancy After Sale Addendum (1 page form)
  • CAR form SIP – Seller in Possession Addendum (1 page form, intended for less than 30 days)
  • CAR form RLAS – Residential Lease After Sale (5 page form, for more than 30 days rental to seller)

Some Realtors only use either CAR or PRDS forms, but I have found that depending on whom you represent, it may be worthwhile to tell the client about the differences between them as they are not exactly the same for all of these questions.

Now let’s go back to our questions and see what the contract & addenda have to say about each one. (more…)

When buying a home, are they counting calendar days or business days?

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, (more…)

Home sellers wonder: can I leave debris behind when I move out?

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.




What is an “As Is” sale with Silicon Valley real estate contracts?

As is home saleWhat is an “As Is” residential real estate sale or purchase? In Silicon Valley, we have 2 sets of purchase agreement forms with are normally used (though of course others could be used): the CAR (California Association of Realtors) and the PRDS (Peninsula Regional Data Service).  Both have either the default or the option of an As Is sale.

But what does that mean?

An As Is sale means that the seller makes no  warranties about the condition of the property and promises nothing upfront, at contract acceptance, about any repairs being made or credits being given for repairs prior to close of escrow.  In other words, what you see is what you get (thinking back to Geraldine Jones / Flip Wilson) – no promises that the seller will fix anything.

Here’s what the CAR contract says (in part):


As Is clause


In other words, the property will be maintained but not improved prior to close of escrow.

What about negotiating after inspections or new inspections?  The As Is clause does not preclude a buyer later asking for repairs or credits. However, if presale inspections were available, it’s presumed that the As Is includes whatever was already disclosed.  Surprises, however, are often negotiated (though not always).  For instance, if a buyer does inspections and find that there are $20,000 worth of important repairs which were not previously disclosed, it’s very likely that this buyer will ask for repairs or a credit on all or part of what was discovered.

Then what?

The seller in an As Is sale is not obligated to do any repairs, but the buyer may walk, that is, the buyer may back out of the contract and get the deposit back as long as it is prior to the property condition contingency being removed, and any inspections which have been done must later be passed on to the next buyer – so there is some pressure to try to work with the current buyer.

If the seller says yes to the request for repairs, the buyer is then to remove all contingencies and close.

What if the seller says no?  In that case, the buyer has a choice: buy anyway or cancel the contract and get the deposit back.

How often do As Is buyers ask for concessions, repairs or credits? In my experience, most buyers will not ask for any changes to the terms of the contract unless there are surprises which are either “big ticket items” (expensive) or related to health and safety.  If the seller has had ALL presale inspections done, there should not be any surprises or any new requests for repairs or credits.  But if all inspections haven’t been done, any surprises are likely to result in a request for some sort of remediation. (All in all: about half the time.)




If it’s in the real estate contract, your lender will ask for it

Home Sweet HomeBuying a Silicon Valley home? Understand that unless you are buying “all cash“, you will need to show your real estate purchase agreement to your lender, and your lender may want to see inspections, reports or disclosures based on what you’ve written in that paperwork.  And then the bank, credit union or lending institution may ask for repairs prior to close of escrow, even in an “As Is” sale.

This happened to my buyers a few months back.  They were buying  their first home using an FHA backed loan.  In the offer, we indicated that we would be having a few inspections (home, pest, roof, pool). Because financing with FHA backed loans is a tougher road, the lender did, indeed, require certain work to be done prior to close of escrow.  It was supposed to be an As Is sale so the buyers ended up paying for work to be done in order to close (and the seller allowed us to reduce the price somewhat).  Luckily they were all improvements that my clients intended to make anyway – but it was inconvenient and stressful to have to rush to have the work done, and of course this did cause delays.  (We did discuss not having the inspections listed in the offer, but my clients very much wanted them in it.)

For this issue, does it matter which contract you use, PRDS or CAR?

If you are planning to purchase a Los Gatos, Saratoga or San Jose area home, most likely you and your real estate agent will use either the newest PRDS contract (Peninsula Regional Data Service, employed from Los Gatos to San Francisco) or the CAR contract (California Association of Realtors form which is used throughout the state of CA). (more…)

How much time do you need for inspections when buying a home?

Ability to inspectThe real estate contracts in use in Santa Clara County (PRDS and CAR forms) both include a space for stating how many days are requested for the property condition contingency, which includes inspections as well as other investigations.  How much time does it usually take? The CAR contract has a boilerplate number of days offered, 17, as well as a blank.  The PRDS doesn’t make any such suggestion.

In Silicon Valley, unlike most of the rest of California, most home sellers provide pre-sale inspections for viewing by potential buyers. Often it’s at least a termite or pest report plus a home inspection. In many cases the disclosure package includes not just these two inspections, but others as well, possibly roof, chimney, or other components.

When there are no pre-sale inspections available for home buyers to read prior to writing the offer, the number of days requested for inspections tends to be longer.  In this case, prospective buyers don’t really know the condition of what they’re purchasing so they will need a couple of weeks or more, in most cases, to be satisfied that they understand the condition of the property. Sellers are far less likely to see non-contingent offers or contracts with short numbers of days for investigation if the buyers aren’t given full disclosure upfront. (more…)

Real Estate Purchase Offer Terms to Consider When Competing in Multiple Offers (Part 6)

In addition to the financial part of your offer and your contingencies and timeframes, there are other terms that may help you to be more competitive when writing an offer in a multiple offer bidding situation in Silicon Valley.

What other terms could matter, beyond price and contingencies? Lots – they will matter to the seller and they’ll matter to you.

As Is Offers

Sellers always want to sell “As Is” if possible. They don’t want to have to do repairs, to spend the time or the money to fix what may not be perfect.  This is an extremely important area to research, weigh, and understand prior to drafing your real estate purchase agreement, particularly if you are not the only one trying to buy that real estate.  When it’s a seller’s marker (and with multiple offers, it IS a seller’s market), the seller can request and will usually be able to sell As Is.

Buyers always want every imaginable repair done, if at all possible.  Buyers don’t want to have to do termite, roof, electrical or other work on the home. They want a “red ribbon deal” where the home’s been or will be in very good to excellent shape.  They want a section one clearance from the termite & pest company.  They want a leak free roof warranty. When it’s a buyer’s market, and you’re the only one attempting to buy the house or condo, you can usually request and get the seller to do all the basic repairs.

The important point is to understand which of these two markets you’re dealing with – buyer’s or seller’s – if it’s a seller’s market and you’re behaving as though it’s a buyer’s market, you will hurt your odds of getting the property if you request repairs or if your contract provides a seller’s warantee.

Did You Know that You Have a Choice in Which Forms Are Used to Buy & Sell Homes in Silicon Valley?

There are two sets of forms in use in the greater San Jose area (Los Gatos, Saratoga, Campbell, Santa Clara, etc.) for residential real estate sales:

CAR or California Association of Realtors forms and
PRDS or Peninsula Regional Data Systems forms

Although the two contracts or purchase agreements are very similar in some ways, they are also unique in others. Depending on the property in question and your wants, needs and goals, as well as whether you are a buyer or seller in Silicon Valley, you may prefer one of these over the other.

If you are involved in a investor seller or distressed property transaction in Silicon Valley (such as a short sale or banked owned home), you may be required to use the CAR contract by the lender since it’s a strictly “as is” agreement. The banks may also force the purchaser to use a long addendum – best if that’s the case to read it very carefully and possibly even consult a real estate attorney to make sure you understand what you’re being asked to sign.