by David Hamerslough

Happy New Year. As 2022 gets underway, here are some new developments that may have an impact on how transactions will be handled this year and well into the future.

  1. On December 14, 2021, C.A.R. introduced its revised Residential Purchase Agreement (RPA). At the same time, C.A.R. revised a significant number of forms used in conjunction with the RPA, including the Contingency Removal (CR), Notices To Perform (NBP/NSP), Demand To Close Escrow (DCE), etc. Revisions to these forms were necessary in part so that references in these forms correspond to the renumbered paragraphs in the RPA. As of December 14th, 2021, the prior versions of the RPA and related transactional documents are no longer accessible on Zip Forms. Thus, if you have a pending transaction that used the prior version of the RPA, you will not be able to easily use the current versions of the CR, NBP/NSP, or DCE forms because they are not compatible with the prior RPA; agents will need to modify the paragraph references to the newest RPA in those forms so that they are consistent with the paragraphs in the RPA that was used. The other alternative, if you had the foresight to do so, was to have preserved versions of these forms that were in use with the old RPA.
  2. While the new C.A.R. RPA adopts some of the formatting and concepts that have been in the PRDS contract, there are still some philosophical differences between the two forms. These include, but are not limited to, the interaction between the appraisal and financing contingencies, how credits are handled, rights and obligations regarding properties that are being sold with a tenant in possession, how assignments are handled, whether up-front disclosures can be acknowledged in the contract as being read and received, the definition of a fully completed TDS, circumstances relating to when a TDS and other supplemental disclosure documents are to be amended, whether appraisal reports are to be provided, timing issues related to Notices To Perform, whether links can be used to deliver documents, the requirement of a DCE under the C.A.R. contract versus the absence of that contractual requirement under the PRDS contract, and the possible inclusion of most pest control issues in the PRDS contract versus the limited pest control issues in the C.A.R. agreement, etc.
  3. C.A.R. also revised the Seller Property Questionnaire (SPQ) to put a greater emphasis on historical documents and the disclosure of past issues, conditions, and/or defects with the property. The article I wrote last month discussed these revisions and should be referred to for further details. This is especially true for those of you who work primarily with C.A.R. forms and/or do not have sellers provide historical documents as part of a disclosure packet.
  4. Another distinction between the C.A.R. and PRDS purchase contracts is that the PRDS contract contains a separate, mandatory contingency for the investigation and evaluation of the availability and affordability of homeowners’ insurance. The C.AR. contract has no similar stand-alone contingency. Determining the insurability of the property is part of the C.A.R. investigation contingency, which could easily be overlooked in the removal of that contingency.
  5. Non-contingent (also known as “zero-contingency” and “contingent-free”) offers predominated in most markets and at many price points in 2021. However, what may be prevalently used, or preferred by sellers, is not always required by market conditions, including what actual competition exists for a property. I am currently handling several cases involving these issues. They involve, among other issues, whether waiving all contingencies in the offer was warranted, what communications and/or representations took place between the listing and selling agents prior to the offer being written, what was then communicated by the selling agent to the buyer, the timing of these communications, and what price the buyer offered as a result of those communications. It’s likely that claims of this nature will continue in 2022.
  6. For those selling condominiums, some lenders have added a “Deferred Maintenance & Special Assessments Addendum” to their condominium questionnaires and/or underwriting requirements. This Addendum requests answers to a detailed series of questions regarding, among other things, what repairs have been made to the property, the status of those repairs, estimated costs of any unfinished repairs, whether there are any outstanding Code violations or local government certification requirements, etc. Who, if anyone, is obligated to provide that information and whether it can be obtained at all and within the timeframes needed to obtain loan approval are just some of the issues raised by this Addendum, because providing this type of information is not part of the existing California statutory disclosure requirements that apply to sellers (who can then legally shift the burden of those disclosures to the HOA). One thing that is certain is that if the lender is not going to approve or fund a loan without this information, then the requirement to complete the lender’s Addendum needs to be identified as early in the transaction as possible, preferably before writing an offer without a loan contingency or, if a loan contingency exists, then before that contingency is removed.
  7. There may need to be an adjustment of expectations on sellers’ part if the market transitions. For example, in 2021, there were instances where market conditions resulted in buyers being willing to overlook a lot of defects/issues with properties because the property values were steadily increasing and there was limited inventory to choose from. The art of price negotiation and renegotiation of terms may need to be revisited if the number of buyers interested in a property does not remain as high as in 2021. Sellers may also have to adjust their expectations regarding time estimates for any improvements and/or repairs to be made during the pre-marketing phase or during escrow, given the delays that will likely continue regarding retaining licensed contractors to do such work and the availability and cost of the materials needed for that work.

There are a number of other potential issues that may arise in our industry in 2022. These include whether buyer support letters will be banned completely (as they have been in Oregon), whether legal challenges to the Clear Cooperation Policy will be successful, what disclosures, if any, will be required regarding buy-side commissions, broker supervision issues and whether such supervision is being discounted and/or overlooked by some agents, the role of transaction coordinators, etc. I will monitor these and other issues throughout 2022 and provide updates as developments evolve.