California Residential Purchase Contract – Initial Deposit

CA Residential Purchase Contract

California Residential Purchase Agreement

Just wanted to share some notes over the next couple of weeks to all buyers and sellers regarding the newly amended Residential Purchase Contract.

Buying a Home?  New information on the Initial Deposit

As you probably know, when purchasing a home it is common for the seller to ask for an initial deposit from the buyer.  This initial deposit is of benefit to the seller, but also the home purchaser as well.  Let’s talk about a few purposes, and caveats, for the initial deposit.

Initial Deposit Represents Your Liquidated Damages

Let’s say you agree to purchase a home, and you have removed all the contingencies (reasons to not move forward).  The seller knows at that point that you have done your inspections, completed your loan work, and that within the next couple of weeks the loan will be funded, the property will close escrow, and the seller will take the proceeds from the buyer and move ahead with his or her life.

Often the seller of a home will not proceed with moving plans until all the contingencies have been removed, and they are certain that the home is going to be sold.  Imagine then, that the seller hires a moving company, pays to have the contents of the home shipped, and then, on the day escrow is to close and the home seller is to be paid, the buyer simply says “I’m not buying.”  That would not only be an irritating problem, but potentially a financially disastrous one as well, particularly for the seller of the home.

The California Purchase Agreement for homes specifies that in damages that are caused by either party for the specific instance above are to be limited by the initial deposit, and that initial deposit is defined as Liquidated Damages. So even, for instance, if the family selling their house suffers financially to the tune of $20,000, if the initial deposit was only $5000, then that limits the amount the seller can force the buyer to pay because of their default.

The initial deposit is also called earnest money, and by the term you can see that it is intended to be enough money so that the buyer and seller know that the consequences of knowing and abiding by the home purchase contract are serious.

Believe me, the issue of the initial deposit should be fully explained to you buy your Realtor in any real estate transaction. Initial deposits are very important in not only protecting financial interests, but can also play a part in the negotiating of the purchase itself. There are additional pitfalls to the initial deposit that are likewise impacted by other parts of the residential purchase agreement, and these also should be carefully reviewed with your agent.

If you have a question, please contact us, and if you are studying to become a better real estate consumer, then we hope this has been helpful.

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