REAL ESTATE DOLLARS AND SENSE

Not All Contracts Are Created Equal...

In a previous issue of Real Estate Dollars and Sense entitled “To Be Or Not To Be Contingent...” I walked you through the key buyer contingencies in the California Association of Realtors (C.A.R.) purchase contract. While the C.A.R. purchase contract is the most commonly used purchase contract for residential real estate transactions in California, you may find yourself in a home purchase where the seller requires a different purchase contract entirely. Why, you may ask, would a seller use anything other than the most commonly used residential purchase contract for their transaction? In this issue of Real Estate Dollars and Sense, we will explore the answer to this very question.

C.A.R. purchase contracts do an exceptional job of remaining neutral between buyers and sellers. After all, C.A.R. members (i.e. REALTORS®) represent both buyers and sellers equally generally speaking. It stands to reason, therefore, that C.A.R. endorsed purchase contracts would neither favor buyers nor sellers disproportionately. Custom purchase contracts proposed by Sellers, on the other hand, tend to be extremely seller biased, putting buyers at a significant disadvantage in the transaction. Zillow mandated purchase contracts for the sale of their Zillow owned properties is one such example. Below, I will highlight a few “gotchas” in a typical Zillow purchase contract that all buyers must be made aware of.

Contingencies:

As you may recall, the inspection, appraisal, and loan contingencies are commonly used in real estate purchase contracts to protect the Buyer’s earnest deposit (up to 3% of the purchase price in California) in the event that an unexpected issue arises during the inspection, the appraisal or the loan, respectively. While the timelines for each of these contingencies vary based on property or market conditions, a standard C.A.R purchase contract contains verbiage for all three specifying that each of these contingencies remains in effect until a Buyer actively removes them in writing. In addition, if a Buyer does not actively remove a contingency in writing on or before the timeline indicated in the purchase contract, a Seller must provide a Notice of Buyer to Perform (NBP) indicating which contingency needs to be removed and allow the Buyer additional time (typically 48 hours) to get back within the bounds of the contract by removing the appropriate contingency in writing. If a Buyer fails to meet the provisions of the NBP, then (and only then) does a Seller have the legal right to terminate the contract and authorize escrow to return the earnest deposit to the Buyer.

In contrast, in a Zillow purchase contract, the inspection, appraisal, and loan contingencies expire automatically (figuratively “at the stroke of midnight”), without the Buyer having to actively remove the contingency in writing. Furthermore, Zillow, as the Seller, may terminate the contract immediately if a contingency deadline is missed by the Buyer without first having to issue an NBP to the Buyer. These seemingly minute details greatly increase a Buyer’s risk because of the increased exposure of losing their earnest money.

Seller Disclosures :

Another key difference between C.A.R purchase contracts and Zillow purchase contracts is with Seller disclosures. Amongst other disclosures, California real estate law requires that a Seller disclose material information about the property being sold to the Buyer. This is commonly done via two C.A.R forms, the Seller Property Questionnaire (SPQ) and the Transfer Disclosure Statement (TDS). Both of these contracts require Sellers to answer several questions regarding known defects with the physical property, title, any neighborhood nuisances, or HOA just to name a few.

In the Zillow contract, however, Zillow mandates that Buyers waive their right to obtain such information from Zillow, citing that Zillow never occupied the property and therefore does not have any knowledge about the property to provide to the Buyers. While it is very reasonable to believe that Zillow never occupied the property, the question one must ask is does Zillow really not know anything about the property that they are selling? What about the Seller disclosures provided to Zillow when Zillow purchased the property? Given that Zillow typically sells their properties shortly after purchasing (sometimes within only a few months), I would venture to guess that Zillow obtained some information in the disclosures provided to them, and the fact that Zillow will not disclose this information to Buyers should give us all pause.

The above demonstrates the increased risk Buyers face when purchasing Zillow-owned properties. Am I suggesting to never purchase a Zillow-owned home? Absolutely not – I am suggesting however that Buyers exercise caution and be aware of the subtle differences between the C.A.R. purchase contracts used in the majority of California real estate transactions and those used by Zillow. Have questions about your purchase contract? Give me a call – I’d love to hear from you!

Fill out the form and we'll be in touch soon!

How we can help you?

Untitled Document