A real estate purchase and sale agreement is the central legal instrument in a property transaction. It is the document that formalizes the rights, duties, and remedies of both buyer and seller. In California, these agreements are often prepared on standardized forms such as the California Association of Realtors’ Residential Purchase Agreement (RPA), but they remain binding contracts subject to California contract law, the Civil Code, and related statutes. A well-drafted agreement minimizes disputes; a poorly understood one can invite litigation.
Ambiguous or Incomplete Terms
Ambiguity in purchase agreements is a common cause of disputes. California contract law requires that contracts be interpreted to give effect to the mutual intent of the parties. Under Cal. Civ. Code § 1636, the parties’ mutual intent at the time of contracting governs interpretation. If language is unclear, courts may admit extrinsic evidence under Cal. Civ. Code § 1647. Using imprecise terms, or omitting key obligations such as deadlines for performance, delivery of disclosures, or specific inclusions/exclusions, can result in costly litigation.
Inadequate Contingency Clauses
Contingencies—such as financing, appraisal, inspection, and title review—are the buyer’s primary safety valves in the transaction. If poorly drafted, they can create uncertainty about performance or termination rights. Under Cal. Civ. Code § 1657, when no time for performance is stated, a reasonable time is implied. In practice, “reasonable” can be disputed. The safest approach is to clearly state deadlines, removal requirements, and consequences of failure to remove a contingency in writing, as reinforced by the RPA structure.
Misunderstanding Liquidated Damages Provisions
Many purchase agreements contain a liquidated damages clause, typically limiting a seller’s remedy to retaining the buyer’s deposit (often capped at 3% of the purchase price under Cal. Civ. Code § 1675). However, such provisions are only enforceable if separately initialed by both parties and otherwise compliant with Cal. Civ. Code § 1677. Failing to follow these formalities may invalidate the provision, exposing parties to broader damages claims.
Overlooking Disclosure Obligations
California imposes extensive disclosure requirements on sellers, including the Real Estate Transfer Disclosure Statement (TDS) under Cal. Civ. Code § 1102 et seq. and the Natural Hazard Disclosure Statement (NHD) under Cal. Civ. Code § 1103 et seq.. Failure to make required disclosures can result in rescission, damages, or both. In Jue v. Smiser, 23 Cal. App. 4th 312 (1994), the court allowed rescission where the seller failed to disclose significant defects, emphasizing that statutory disclosures are material to the buyer’s decision.
Improper Handling of Earnest Money Deposits
Earnest money must be handled in compliance with escrow instructions and trust account requirements. Mismanagement can expose brokers or parties to liability. Under Cal. Bus. & Prof. Code § 10145, real estate brokers must deposit funds into a trust account within three business days unless otherwise agreed. Disputes often arise when buyers seek return of deposits after cancellation, making strict adherence to contract and escrow provisions essential.
Failing to Address Title Defects and Encumbrances
Title problems—such as undisclosed easements, liens, or boundary disputes—can derail a transaction if not addressed in the purchase agreement. Buyers should review the preliminary title report and object within the contractual period; sellers must resolve curable defects before closing. Failure to address such issues can breach the implied covenant of good faith and fair dealing recognized under California law (Carma Developers (Cal.), Inc. v. Marathon Development California, Inc., 2 Cal. 4th 342 (1992)).
Not Accounting for Local Ordinances and Transfer Taxes
Many California cities impose local transfer taxes, rent control, or point-of-sale inspection requirements. The purchase agreement should clearly allocate responsibility for compliance and payment. Failure to do so can leave one party bearing unexpected costs or delay closing.
Conclusion and Call to Action
A real estate purchase and sale agreement is far more than a template—it is a binding, enforceable contract with long-term legal consequences. Whether you are a buyer seeking to preserve your rights or a seller aiming to avoid post-closing disputes, careful review and negotiation of every provision is essential. At Guiding Legal Counsel, APC, we provide meticulous, statute-driven analysis of real estate contracts, helping clients identify and avoid costly pitfalls before they arise. Contact us today to schedule a confidential consultation and ensure your transaction proceeds with clarity, compliance, and confidence.