Keeping Yourself Out of Trouble with our Local Purchase Contract

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There are a few different form contracts that realtors use in the Bay Area when it comes to writing up an offer for a house.  The one that is most commonly used in San Carlos is often referred to as the “PRDS Contract”.  Many of you may recognize it if you have submitted an offer in the last few years.  Of the three form contracts floating around, my opinion is that the PRDS contract is the best of the three, however, there are still pitfalls that can swallow buyers and sellers if proper care is not taken when drafting or accepting one of these contracts.

If you do run into an issue during a transaction or after you have bought your home, the purchase contract is the first thing any attorney is going to ask for.  The purchase contract not only dictates the price of the home, but it stipulates the terms and risks that were undertaken by the buyer when the home was purchased. During my final year of practicing law, roughly one in four residential real estate transactions ended up with some type of attorney involvement in California.  This was due to a variety of factors, but the involvement was largely due to poorly written contracts and diligence on behalf of realtors.  The following are examples of a few of the areas in our local contract that can cause issues for buyers and sellers:

Addendums


If there is an area of the purchase that the buyer or seller want to address outside of the pre-printed language on the PRDS Contract, realtors will use a PRDS Addendum. This is where it gets a bit scary because now the buyer and seller are essentially modifying the terms of a contract which has already been tightly written by the attorneys who drafted the PRDS Contract.  Modifying language in free form without understanding the implications on the remainder of the contract can be unsettling if the terms on the addendum are in the slightest bit complicated. If you do have a complicated addendum, do not be afraid to have your attorney look it over or have the managing broker at your realtor’s office take a look at it.

Disclosures


The PRDS Contract will talk about disclosures in several different sections.  Most buyers and sellers know that executing disclosures is an essential part to purchasing a home in San Carlos.  However, few realize the significance of “timing” when signing the disclosures.  For instance, consider the following and you will see just how important timing can be:

A seller offers a home for sale in San Carlos, which she believes is a 4 bedroom, 3 bath home.  The seller accepts an offer on her home with the understanding that the buyer will return all signed disclosures within 72 hours after acceptance.  After acceptance the buyer looks through the disclosures and notices a warning from the listing agent to check the county/city records regarding the permitted bedroom and bathroom count.  The buyer goes down to the county office and discovers that the home actually only contains 3 permitted bedrooms.  The buyer can now go back to the seller and demand that the seller take all necessary steps to permit the 4th bedroom (which can be very costly) or demand  a price reduction.  According to recent California case law, the seller is trapped. The buyer has an accepted offer to purchase what was deemed a 4/3, not a 3/3.  The fact that a property inspection contingency may be in play is irrelevant, as that contingency is in place as a benefit to the buyer, not the seller. Now, if the listing agent had insisted that the buyers sign those particular disclosures ahead of acceptance, the buyer would not have that same recourse against the seller because the buyer was put on notice and assumed the risk prior to acceptance. Just a quick example of how costly timing can be with the PRDS Contract.

As-Is Language


There is a reason that the overwhelming majority of homes purchased in San Carlos are purchased under the term “As-Is”.  This term essentially means that the buyer is willing to take the property in its current condition with known defects.  If the purchase is not identified as an As-Is purchase on the PRDS Contract, you are opening yourself up to a wide range expensive propositions if you are a seller.  The PRDS Contract goes into adequate detail in terms of defining an As-Is purchase, but it does not go into enough detail in terms of suitable solutions and standards, should a buyer not purchase in As-Is condition. As mentioned, I believe the PRDS Contract is a solid contract and the best of the three that are out there, but this is one area of the contract that needs to be improved.  It is assumed that the seller will be making repairs to a property that is not sold in As-Is condition.  Just who makes those repairs, the standard to be used, quality of workmanship and timing, are all a little vague in the PRDS Contract.  Spelling all of these items out in an appropriate addendum will help alleviate some of the ambiguities that go along with an As-Is purchase.

Don’t Forget…


The items above are just a few of many possible legal considerations which should be taken into account when purchasing property in San Carlos.  As detailed in the About section of the San Carlos Blog, please remember that nothing on this site should be considered legal advice.  While I still hold my license to practice law, everything written on the San Carlos Blog, has been written as a realtor, not an attorney.  If you have specific questions or need guidance on your purchase you should contact an attorney who specializes in residential real estate.

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