An Essential Guide to California’s Residential Purchase Agreement and Joint Escrow Instructions

Breaking Down the California Residential Purchase Agreement

The California residential purchase agreement and joint escrow instructions ("RPA-CA" or the "RPA") constitute California’s recommended standardized contractual purchase form for the sale of real property. It addresses all of the issues typically involved in nearly every listing. For a real estate transaction for the "purchase and sale" of a residential property located in California to be considered a legally binding contract, it is a prerequisite for the buyer and seller of the subject property to prepare, negotiate and execute an RPA.
The RPA replaces several other forms and document packets that had previously been used in California, including a combination of the purchase agreement and escrow instructions. This combination document eliminated the miscommunication that could occur when the purchase agreement and the escrow instructions were two separate documents . The RPA is intended to be more convenient and reduce the possibility of confusion by the parties when closing their transaction. It replaces buy-sell agreements and listing agreements that have been used in the past.
As the RPA is a standardized form, there is more uniformity and consistency in California for all of its use. Some real estate agents in California still use their own form or versions even though the RPA is the mandatory form in the RPA-CA. This form is heavily relied upon by real estate professionals, brokers, and agents in California. This is true for residential properties for single or two to four multifamily units even though the RPA does not cover every possible possible issue. The RPA is a legal contract subject to California contract law.

Understanding Important Aspects of the Residential Purchase Agreement

The Residential Purchase Agreement (RPA) usually appears as an all-inclusive agreement which takes the place of various contracts, addenda and disclosures that have traditionally been considered to monitor and complete the sale of a residential property. But the RPA is actually only the main document in a "package" of documents are the Joint Escrow Instructions. In the circumstances where they do not go hand-in-hand and become one comprehensive package, separate agreements usually result. The package can evolve over the course of a negotiated transaction. However, presented in this format, it is easy to understand how the various documents are correlated to effect a sale of a home and demonstrate their compulsory role in the successful sale of a residential property.
In the RPA’s first few pages, the Buyer unconditionally offers to purchase the property and the Seller offers unconditionally to sell the property for a stipulated amount or prices. The RPA specifically outlines the purchase price, contingencies and sellers’ disclosures which are important to all parties. Typically, the RPA also gives the Buyer specific time limits to satisfy all contingencies including the loan and appraisal contingencies, as well as the inspection contingency. Of great significance for all parties, who include the Buyer, Seller, Broker and escrow, the RPA clearly states that all contingencies must be satisfied after the Buyer has had a chance to do a thorough investigation of the property. For example, the Buyer must research property documents for the property. This leads the Buyer to conduct a thorough investigation and present a counteroffer that spells out clear and precise contingencies.

Insights into Joint Escrow Instructions

Joint escrow instructions refer to a set of requirements that a real estate escrow agent enforces to complete a real estate sale. While the California Residential Purchase Agreement and Joint Escrow Instructions, usually shortened to CAR purchase agreement, outlines the real estate sale and purchase terms between parties, it is the escrow instructions that tell the agent what to do behind the scenes. The document is therefore crucial for the real estate agents in completing a sale. The CAR residential purchase agreement generally includes a clause that states the parties to the sale have opened an escrow account at a certain agent in California. The main goal of the following joint escrow instructions is to achieve the goals in the purchase agreement by completing a sale. On this document, the escrow agent may outline all the conditions that must be met before the successful closing of a sale. Some of the items that appear in the instructions include: An escrow agent does not change the terms of the purchase agreement but only follows the instructions. As long as the requirements of the agent are met, the closing of the escrow account proceeds smoothly.

Navigating Joint Escrow Instructions and the Purchase Agreement

The California Residential Purchase Agreement is the initial legal contract between the buyer and seller and sets forth the terms of the sale, including price, closing date, and contingencies. In contrast, the Joint Escrow Instructions set forth how these terms are implemented and performed. The two are intertwined and complementary. If the California Residential Purchase Agreement is the skeletal structure of the transaction, the Joint Escrow Instructions are the flesh, gristle, and features that give the transactions its unique attributes. While the purchase agreement lays the groundwork, the Joint Escrow Instructions flesh out details of the transaction, providing form to the agreement and solidifying the terms of the sale and obligations of the parties. The California Residential Purchase Agreement and Joint Escrow Instructions work in tandem as the primary documents of an accepted residential purchase offer and their combination is critical to a successful closing. An effective real estate purchase agreement requires the skilled hands of qualified California real estate professionals to ensure that all of the terms, conditions, provisions, requirements, and obligations of the sale are properly set forth in the agreement and are fully expressed and carried out in the Joint Escrow Instructions.

Common Mistakes to Avoid with the Purchase Agreement and Escrow Instructions

As straightforward as the California Residential Purchase Agreement and Joint Escrow Instructions may seem, there are several common pitfalls buyers and sellers can encounter when completing the purchase agreement.
Mistake #1 – Failure to properly identify the parties. This may seem like an obvious step, but it is not unusual for a party to sign his or her initials, but forget to put his or her full name on the exact line requiring that information to appear. In addition , it is important that the seller and buyer be the same parties identified in the preliminary title report.
Mistake #2 – Misunderstanding a "seller" and a "buyer." The purchase agreement must identify the seller and the buyer. It also must identify whether a legal entity or entity is involved in the transaction. This could be a business, corporate or organizational entity, or it could be a family trust. In addition, the buyer must be the same as the buyer on the preliminary title report.
Mistake #3 – Price too low for current market values and circumstances.
Mistake #4 – Improper explanation of escrow instructions.
Mistake #5 – Not having enough deposits.

The Importance of Enlisting Real Estate Professionals

While self-help tools can be useful in an overwhelming legal regimen, successfully navigating the California Residential Purchase Agreement and Joint Escrow Instructions with help from professionals is a useful investment. Real estate agents bring knowledge of inventory and marketplace issues to the table, while attorneys fill the nuances of California law.
Establishing a relationship with a high-quality real estate professional brings a big payback. Agents bring their knowledge of the market to buyers and sellers, so those transacting business in California residential real estate have a competitive advantage in negotiating and closing the most advantageous deal. Lawyers specialize in contract language and overall legal guidance for all aspects of the deal. These need not be specialists, as many of the leading law firms have both high-end real estate specialists as well as general business attorneys.
Licensed California real estate agents and brokers are recommended when entering into any real estate transaction. Often, the agent or broker has an established relationship with an escrow officer and/or title officer to combine resources to lead a buyer through the process. The Realtor typically forms a bond with the parties they represent in real estate and stays close with them for life. California real estate agents serve as the glue that bond their clients to useful industry resources while addressing all their real estate needs. It’s what they’re pros at and is what maintains their business.
California attorneys, on the other hand, are just general practitioners in the real estate space. This means that they may have experience as a transaction attorney, but they are not experts in real estate law. Unless a constructively hands-on level of legal work is required, in most transactions a high-end real estate lawyer is not required.
Although most real estate agents have general contract savvy and understand the California law involved within the Residential Purchase Agreement (RPA), certified members of the Residential Real Estate Council are more highly educated on the legal standard-of-care, contractual law, and ethical practices of real estate than their peers. The RRC is an international affiliate of the National Association of Realtors and is based in the Midwestern U.S.
Real estate agents who have successfully completed a 12-hour course after passing their state-administered examination have been granted access to the RRC’s vast professional resources, including collaborative tools and education. Educational courses are available throughout the U.S. and Canada, addressing niche areas in marketing, sales, negotiation skills, and contract law. A network of certified RRC members in California and across the U.S. place consumers on a path to make superior and informed choices in real estate.
While RPA is standardized on the state level, different escrow instructions will likely be used in each transaction. California real estate attorneys may be engaged to provide legal advice in escrow on a per-transaction basis, while an in-house real estate attorney may also offer guidance in the process for high-end agencies.

Answers to Frequently Asked Questions about the Purchase Agreement and Escrow Instructions

Question: What is the purpose of the Joint Escrow Instructions?
Answer: The Joint Escrow Instructions are special instructions provided to the escrow company concerning the requirements of the seller and the buyer. They are used separately but are usually combined with the purchase agreement.
Question: Who pays for the escrow fees?
Answer: Escrow fees are typically paid for jointly by the seller and the buyer. However, it should be noted that while it is common practice for both parties to split the fees equally , that is not a requirement under California law. Some or all of the fees may be paid by either party or split in any way agreed upon by the parties.
Question: What types of deposits are authorized under the California Residential Purchase Agreement and Joint Escrow Instructions?
Answer: The terms "binder deposit" and "binder money" refer to the earnest money deposit paid by the buyer to the seller. A binder deposit is considered a partial deposit. A binder deposit is put in trust with the escrow company until the parties sign a purchase agreement. Earnest money deposits should be clearly separated from other invoices, though the parties should be sure to keep them together during the transaction.
Question: What happens if the buyer is not able to obtain financing?
Answer: This depends on the contingencies in the purchase agreement.