Why Your Real Estate Contract Choice Matters in Silicon Valley

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In most of California, the purchase agreement form used when writing an offer to buy residential real estate is the California Association of Realtors form, the Residential Purchase Agreement.  Along the San Francisco Peninsula and in Silicon Valley, though, often we use another form, the Peninsula Regional Data Service purchase agreement (PRDS contract).

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 warrantee 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.  Let's look at some examples of why it matters.

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.), 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.

Areas to Note as a Seller

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.

One such area is the appraisal.  In the CAR contract, making the appraisal a contingency (the home must appraise to purchase price) is part of the boilerplate and needs only to be checked to be included. In the PRDS form, it's not mentioned at all "? it is simply absent. (Buyers - it can be written in, of course. But will most agents ask you about it and offer to write it in?)

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.

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