In most of California, the purchase agreement form used when writing an offer to buy residential real estate is the California Association of Realtors (CAR) form, the Residential Purchase Agreement (CAR-RPA). Along the San Francisco Peninsula and in Silicon Valley, though, often we use another form, the Peninsula Regional Data Service purchase agreement (PRDS contract). Few consumers know that there is a choice of forms to use when buying Silicon Valley real estate. And too many real estate sales people do not understand the difference between them.
Does it matter which one you use? It certainly does!
While anything in the boilerplate can be modified (deleted or added to), the basic text is not identical from one to the next, and neither are the ramifications to buyer and seller. Here are a few examples:
– Property condition: one is an “as is” contract and the other requires that the property be delivered with a warranty of condition (no leaks, no cracked glass, no structural defects in chimneys, all systems operational, etc.)
– Repairs in escrow: one says that repairs must be by a licensed contractor, the other that repairs must be done in workmanlike manner (can be done by anyone)
– Defaulting: one contract has more ”teeth” with buyer or seller defaults than the other
There are pros and cons to each of these two forms. A skilled agent is “bilingual” in both, understands the strengths and weaknesses of each one, and can modify as needed the form to benefit the client. What is tricky, even for Realtors who work with both sets of realty forms, is that they keep changing. So there can be confusion on what is and isn’t covered, or the way in which various aspects of the contract are addressed. Let’s look at some examples of why it matters which real estate contract you use in the San Jose area.
Subtleties Behind CAR and PRDS Contracts
There are many issues to consider, but let’s just think about property condition for a moment. If you’re a buyer, you may prefer the PRDS form because it requires the home to be delivered with all systems being operative (heater, water heater, appliances, electrical systems etc.), it requires a Section 1 Pest Clearance and it requires a licensed contractor to do the repairs.
The CAR form, on the other hand, is AS IS and the seller or a handyman could do the repairs. With the AS IS form, you can still request repairs, but the seller is not obligated to do them. If you are buying a home and use the PRDS contract, though, and you discover leaks in the roof, at the shower enclosure, or elsewhere, for instance, the seller must pay to repair these items, and the seller must hire a licensed contractor to do them. It’s not a request, it’s already been agreed upon. (There may be some exceptions, but that is in the realm of real estate attorneys.)
Areas to Note for Sellers
As a seller, there are good and bad things in both contracts for you too. Many sellers will be happy to use the PRDS contract if they can make it ”As Is” because there are other provisions in that form that are favorable to the seller.
Comparing and contrasting the purchase agreements in use in Silicon Valley could easily be a multiple day course as there are many points to evaluate and juxtapose.
What is important to know, as a consumer, is whether your best interests are being represented when the form selection is made, and whether there are modifications that should be done to best protect you, such as an as-is addendum if you’re the seller (and it’s a PRDS contract) or writing in an appraisal contingency or a leak-free roof warrantee (if you’re a buyer).
A good Realtor will be able to discuss the strengths and weaknesses of each form relative to your position at the bargaining table, and will add, delete, or change things as needed to give you the best representation and negotiation possible.
Areas to Note for Buyers
The CAR contract does not obligate the seller to do any repairs whatsoever. If you know that you want a pest clearance (Section 1 termite clearance) or a watertight roof, you must request these things up front to be guaranteed to get them. Alternatively, you can request repairs or credits once your inspections are done and if the seller doesn’t agree to your requests, you can get out of the contract. (This is true for both forms.) It’s just that you are having to re-negotiate partway through your transaction, and you may prefer to go into the sale knowing that all systems will be functioning, there are no section 1 items, etc.
Also, it should be added that not everything is covered even by the PRDS contract in terms of property condition. Foundations, for instance, are not mentioned at all. So if there are foundation, drainage, and related structural concerns (except for chimneys), that will have to be negotiated between the home buyer and seller.
Finally, when in doubt regarding contracts and forms, please see a real estate attorney. Lawyers are the best equipped professionals to deal with contracts, and those who specialize in real estate will be familiar not just with the language of the form, but the subtle implications of each line.
For more reading on Silicon Valley real estate contracts and forms:
Should you write an offer with no contingencies? What is the risk with a non-contingent offer?
Can home sellers back out of the contract or force a buyer out?
