Why Your Real Estate Contract Choice Matters in Silicon Valley
by Mary Pope-Handy | Contact Mary Pope-Handy w/ Questions
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.
(c) Mary Pope-Handy for the Silicon Valley Real Estate Blog at 1SiliconValley.com
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- Why Your Home Will Sell Faster, For More Than the One Next Door
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- How to Successfully Complete Your Home Purchase
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April 02, 2008 | Filed under: Home Buyers, Home Owners
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Great article, Mary. I’ve often joked that being fluent in CAR and PRDS contracts is like being fluent in British and American English. They use the same concepts but you can get more than just embarrassed by assuming they’re the same.
Thanks Steve! Sometimes, with the contracts and disclosures, it’s just not so clear what is being “added” or “deleted”. I think that’s a place where the agents bring real value to the table. Consumers often think of what we do in terms of how much time or effort is involved. I would say, it’s not so much the time or effort I put into it, but what I (or any other good agent) know and how it benefits you, that counts.
Also, thanks for the nice welcome to 1SiliconValley!!
Mary
This is a *great* article. I’ve been through three separate transactions in the South Bay and never even knew there were different forms. Luckily, we must have had a PRDS in our last home purchase, because the seller was obligated to make a significant number of repairs that, in retrospect would not have influenced our decision to buy the home (lotsa small stuff).
Question: Who makes the decision about which type of agreement is used? Is the seller generally presented with the contract choice by the agent? If so, I can’t imagine why the sellers of our current home chose to do so. If not, seems like their agent did them a dis-service.
Hi Blake,
Thank you for the kind words on my post.
You raise an excellent question about who chooses which contract(s) to use (the listing agreement is also a little different from one series to the other). In fact, I once attended a “Legal Update” in which Ron Rossi, a local real estate attorney, discussed this very question. As agents, we really need to talk to our clients about the pros and cons of these forms so that they are able to be better informed and, if possible, choose the form that will best enable them to get what they want in the negotiation. The selection of the contract is, in itself, a negotiation of sorts. Best to do it with the full consent of our principals!
In most of the state (and in the vast majority of the San Francisco Bay Area), the CAR form is used - and the PRDS form is really unknown. It is simply off the radar. In other areas (from Los Gatos to South San Francisco), the PRDS contract is the standard. I’ll give you a little background on this, in case you’re wondering about the gerrymander-appearing boundaries for what’s where.
Historically, the south Bay had a couple of different real estate boards to which members (Realtors) belonged, and the use of one contract or the other pretty much fell along party lines - or political boundaries.
(1) Los Gatos and Saratoga used to be the “Saratoga Los Gatos Board of Realtors” and they were connected to a group of other smaller boards stretching up into the Peninsula to about San Francisco. (These associations kept changing over time - eventually the local ones merged into SILVAR, the Silicon Valley Association of Realtors. It includes Los Gatos, Monte Sereno, Saratoga, Cupertino, Sunnyvale, Mountain View, Los Altos, Los Altos Hills and Palo Alto.) These areas traditionally use the PRDS form (Peninsula Regional Data Service).
(2) The old “San Jose Board of Realtors”, which is now known as SCCAOR or the “Santa Clara County Association of Realtors” traditionally used the CAR form.
(Campbell and Santa Clara agents sometimes belonged to one board, or the other, or sometimes both.)
Anyway, that’s the situation in terms of tradition or habit. Some agents are trained on only one contract, and therefore insist on its use. (Obviously, this is not very good for the consumer, but it is probably worse for agents to use forms they do not understand well.) In a sellers market, of course the listing agent can insist on which form to use. In a buyers market, the listing agent is unlikely to complain about the choice of form when an offer comes in - the buyers’ agent can pretty much decide.
When I work with buyers and sellers, I explain to them that both series of forms exist, and that there are pros and cons to each. When I work with buyers, of course I’d prefer (most of the time) to use the PRDS form because, as you note, it requires the seller to do certain repairs. You don’t have to squabble to get them agreed to later. Sometimes, though, the CAR form can be preferable. It really depends on the situation.
It is interesting to see what happens when a buyer uses the PRDS form and the sellers’ agent has the seller accept it, but without understanding that it’s not the same as the CAR form. (Great for the buyer, a bad surprise for the seller.) It is imperative to actually read and understand what you’re signing. Guy Berry, a local real estate broker and trainer, teaches a course, “What Does The Contract Say?” with the point being that agents (and consumers) need to read and comprehend what’s actually there in the form rather than assume that all the forms are the same because many of the phrases are identical.
Glad to hear that your last transaction worked out in your favor, Blake. Sounds like you had a good agent helping you out.
Thanks again,
Mary
Thanks Mary - I appreciate your detailed response. I’m sure other readers will find this info very interesting, as well.
Mary — The differences in contracts has had my eyes rolling for years now, as we do business in several states. It can present problems not only in concept, but in plain or language as well.
Whether ‘as is’ or with warranty, the different states and their differing real estate cultures have made for some interesting times. We eventually threw in the towel and decided to have a central clearing house — a round about way of saying a real estate attorney vets just about everything.
You’ve really struck a chord with this topic.
Hi Blake,
Thanks for your feedback, we appreciate it!
I can’t imagine how complicated it must be to have a variety of contracts (one per state in most cases?) to work with and understand - especially with all the the nuances! Smart idea to run them all past an attorney who understands what’s what. So you have one attorney review them all, or an attorney in each state where you do business?
Thanks again for your thoughtful feedback.
Mary
We use one attorney who appears to know every dirt lawyer in the free world. The only hitches are if a phrase in one states means X, but it means Y in another state. Go figure.
Having an attorney in each state tended to cause more problems than it solved. In Texas for instance, the contract favored by many calls for a fee to be paid for the ‘due diligence’ period. It goes directly to the seller, yet is applicable to sales price if the sale closes.
I don’t raise my eyebrows at much these days.
Thanks! It’s fascinating how different norms are from one state (or area) to the next.
Mary