Purchase Agreement Types and Variations

A newcomer’s entry as a real estate agent into the vocation of soliciting and negotiating real estate transactions typically begins with the marketing and locating of single family residences (SFRs) as a seller’s agent or a buyer’s agent (also known as listing agents or selling agents, respectively).

Other properties an agent might work with include:

  • one-to-four unit residential properties;
  • apartments;
  • nonresidential income properties (office buildings, commercial units and industrial space);
  • agricultural property; or
  • unimproved parcels of land.

A purchase agreement

form is the primary document used to negotiate a transaction between a buyer and seller. Different types of properties each require a different variety of purchase agreements. Various purchase agreements comprise provisions necessary to negotiate the sale of a particular type of property.

Three basic categories of purchase agreements exist for the documentation of real estate sales. The categories are influenced primarily by legislation and court decisions addressing the handling of the disclosures and due diligence investigations in the marketing of properties.

The three categories of purchase agreements are for:

  • one-to-four unit residential property sales transactions;
  • other than one-to-four unit residential property sales transactions, such as for residential and nonresidential income properties and owner-occupied business/farming properties; and
  • land acquisition transactions.

Within each category of purchase agreement, several variations exist. The variations cater to the specialized use of some properties, the diverse arrangements for payment of the price and to the specific conditions which affect a property, particularly within the one-to-four unit residential property category.

California real estate forms and the freedom of choice

The California real estate industry has an extensive variety of boilerplate contracts for practically any contractually negotiated real estate situation. A broker may use any contract they choose. Other brokers, trade union associations, insurers and the multiple listing services (MLSs) may not and do not require a broker to use a particular form.

Though forms published by the California Association of Realtors® (CAR) are ubiquitous, offers and other real estate transaction forms may be written on any number of other legal formats, such as those published by RPI (Realty Publications, Inc.) .

The use of printed commercially-published forms in lieu of independently-drafted forms to document real estate related transactions and services is justified for two reasons.

First, a commercially-published form satisfies the writing requirements mandated by the Statute of Frauds for most real estate transactions. [Calif. Civil Code §1624]

Second, a commercially-published form generally provides clarity of meaning and more uniformity in agreements and disclosures than typically results from independently-drafted forms.

However, not all published forms feature the same level of quality, clarity and utility. Nor are they all biased favoring the same side in a transaction.

Commercially-published forms provide a checklist of possible variables in a transaction for everyone to consider, thus decreasing the potential for error. Published forms limit the task of brokers and their agents to reviewing the provisions and filling in blanks and checking boxes to indicate the provisions included in the agreement or disclosure.

No one approves forms sold by publishers – not the State Bar, the Department of Real Estate (DRE) or trade unions. Each publisher is responsible for the content of the forms it publishes.

Forms broadly fit into two categories. Forms are either:

  • mandated for use by dictate of the state legislature, such as the Agency Law Disclosure – Disclosure Regarding Real Estate Agency Relationships [See RPI Form 305], Condition of Property Disclosure – Transfer Disclosure Statement (TDS) [See RPI Form 304] and the Natural Hazard Disclosure Statement [See RPI Form 314]; or
  • generic forms, such as listing agreements, net sheets, costs sheets, etc.

Each form mandated for use by the state must have the same content – no matter who publishes it, and many do. Further, each publisher is responsible for the content of its own generic forms.

RPI is one of the most established publishers in California. RPI forms are 100% legal for use in California and are available at no cost to firsttuesday students.

Purchase agreement variations

Purchase agreement variations for one-to-four unit residential sales transactions include purchase agreements for:

  • negotiating the conventional financing of the purchase price [See RPI Form 150];
  • negotiating a short sale [See RPI Form 150-1];
  • negotiating a cash to new or existing mortgage, or a seller carryback note [See RPI Form 150-2];
  • negotiating for separate broker fees paid each broker by their client [See RPI Form 151];
  • negotiating the government insured financing (FHA/VA) of the purchase price [See RPI Forms 152 and 153];
  • negotiating the sale of an owner-occupied residence-in-foreclosure to an investor, called an equity purchase (EP) agreement [See RPI Form 156];
  • negotiating an equity purchase short sale [See RPI Form 156-1];
  • direct negotiations between principals (buyers and sellers) without either party being represented by a real estate agent [See RPI Form 150-3]; and
  • negotiating highly specialized transactions using a “short-form” purchase agreement which does not contain boilerplate provisions setting forth the terms for payment of the price, which allows the agent to attach specialty addenda to set the terms for payment (a carryback ARM, equity sharing addenda, etc.). [See RPI Forms 154, 155-1 and 155-2]

Variations among purchase agreements used in income property and owner-occupied business property sales transactions include purchase agreements for:

Finally, a variation exists for land sales of a parcel of real estate which has no improvements in the form of buildings and for farm and ranch sales. [See RPI Forms 157, 158 and 158-1 through 158-4]

Attached to all these various purchase agreements are one or more addenda

, regarding:

  • disclosures about the property;
  • the financing of the price paid for the property;
  • agency relationship law; and
  • special provisions called for by the needs of the buyer or seller.