Paying attention to new contract

As is periodically the case, the California Association of Realtors (CAR) purchase contract has been revised once again. There are new, separate agreements for single family residential and income properties.

Although most buyers and sellers leave the details to their agent, it is beneficial if you have a sense of the latest contract. 

Substantiating funds. The buyer is now required to provide the seller with written verification of the availability of his down payment and closing costs. This could include a letter from the buyer's lender, or bank/money market statements. A note from the buyer simply saying he has the necessary resources will not suffice. 

If some or all of the funds are coming from others (relatives, friends), prudent sellers will insist on a contingency that they be deposited into the buyer's account soon after the escrow begins. 

For most buyers, confirming funds will not be difficult as their lender's pre-approval process would have already verified them. Those who make an offer without loan pre-approval, however, will most likely have a harder time getting their contract accepted. 

Ways to back out. Buyers usually have contingencies for financing and inspections, or others, such as the close of escrow of another property. A contingency is a condition that must be fulfilled in order for the contract to proceed. If the buyer is not satisfied with inspections, or cannot obtain the loan within the contingency time frame, he may cancel the contract and request a refund of his deposit. 

Despite the buyer's duty to act in good faith, principals to a contract should be clear that buyers have great latitude in rescinding. The buyer must not only be willing to accept the property's condition, but “any other matter affecting the property.” 

Thus, noisy neighbors, illegal activity in the area, concern about a shared driveway or a larger than expected expense to modify the dwelling, are only a few of the myriad reasons a buyer may have for choosing not to continue. According to several local legal experts, this latest contract version makes it even easier than previous ones for a buyer to cancel. Needless to say, if a buyer is going to withdraw, it is preferable to do so early in the escrow, thereby minimizing damage to the Seller.