The Investor – Flipper California Residential Purchase Agreement

This is a tutorial on how to draft a California residential purchase agreement as an investor or a flipper or a wholesaler or anyone that would be looking to get a good deal right and aggressive offer will start by using the standard RPA there is a residential income purchase agreement or income property agreement and that’s that’s not really necessary X typically for 4 units and you can use this offer the RPA the standard RPA were using this tutorial this form is totally fine for a single-family home or a Plex up to 4 units so this is the form I typically like to use because I’m so immersed in it I’m just very familiar with all the terms and this is totally what you’ll see an investor use so we’ll jump right into it and then you can of course adjust the terms as you see fit to tailor to your needs all right we start with a D prepared the cop left the day that we’re drafting you offer now for the buyer named I have an LLC because many investors buy as an LLC you can have a company name if you’re Incorporated I also put or assignee which is common with wholesalers or investors that are going to just type of property and then assign it to another buyer and the reason assigning exists is because basically this is saying XYZ is going to buy it or whomever they later identify they will a sinus to sometimes sellers don’t like that because there’s some ambiguity in terms of who the actress on the property to button in general if the offer is good then it it shouldn’t be a problem but either way if the buyer does plan on a signing this this contract to another buyer in this enduring this escrow then they need to put a sign in on there yeah and of course if you’re if you’re not if you’re just buying it for yourself and don’t worry about it just put your individual name or your LLC or corporations name all right I put it in a New Dress I left out the county by accident but you get the idea you put the address that says his parcel number right there I put it in just a sample purchase price of 100000 epic 14 days for the escrow. Now the typical escrow. Is is 30 to 45 days on a standard purchase where you have people buying a home that are going to move in and living at home the an investor is going to write the offer with the minimal amount of days because they can close faster now the reason why 30 to 45 days is the standard is because that’s how much times typically needed for the the buyer’s lender to get all other paperwork in order to get the loan submitted and under written and funded so if you don’t have to mess with them a mortgage then then less than a day’s is better and I mean I do see investors going to 7 days which I think is too aggressive I buy person like 10 on a cash offer 14 is reasonable as well but the question that you should ask yourself to determine how many days you want in your escrow. Is how much time do you need to do your by investigations how much time do you need to figure out if this property pencils out and if you want to buy it that’s that’s why you should put whatever number suits you in there but 14 days works I should mention that the objective with these offers is to be as seller friendly as possible so the idea is that you as investor you’re trying to get your offer accepted so you are making terms that are as as agreeable to the sellers as possible and and so cutting back on on other terms that require that that could create a headache for the seller is puts your offer ahead and I’ll explain a little bit more of what that means as we get into this further I put the deposit of 8000 which is 1% of this cells price that’s kind of low B12 3 percent to standard the larger the earnest money deposit the more of a message you as a buyer are sending to the seller about your sincerity of moving forward and how confident you are of getting is closed so putting 3% which would be twenty-four thousand would be totally reasonable again your objective is to make this is pleasing to the sellers possible we’re checking all cash offer here if you are if you’re an investor If you’re not if you’re if you must get a loan that’s going to put you in an inferior position to all the other cash investors out there and there are plenty and and so it’s very difficult I mean even some investors that don’t have all the cash don’t line up a hard money lending or credit line through a private lender that will effectively work the same way as cash so they can in fact right cash offers as well but my point ultimately is that if you’re not writing cash offers as an investor your you’re starting from the outset at at a very weak position this is the reality of it all right down here I put no loan contingency in the reason is that down here if there’s a box you can check no loan contingency but there’s a bug in the in the forms and zipforms the application that we use to draft contracts so I’m unable to check this box I’ve noticed that on the other offers that I’ve seen dropped by other Asians so I know it’s not just me maybe it’s a browser they’re all using I’m not sure but if you can’t check this box it’s good to write this in here because the sellers going to see this all cash offer coupled with this and given that a mortgage is the primary reason copy spot of escrow and the biggest headache in the transaction you as a buyer are alleviating that headache by saying that you don’t have to worry about a mortgage and all the issues that come with it and because your cash buyer you can waive the appraisal so we checked this box here that this agreement is not contingent upon an appraisal which is is part of the lending process and again another headache so you as investor by getting rid of the mortgage contingency and the appraisal contingency you’ve illuminated probably two-thirds of all headaches that go into a transaction that the buyer has to excuse me the seller has to worry about and since our objective is to make this is pleasing to the seller is possible that’s why I expect a huge reason why cash offers are far superior to the alternative you’re getting rid of the appraisal and Loan contingencies all right so we keep going through here not a boilerplate verbiage I put property to be sold in as-is condition that’s States Our intention to sell her that we’re not going to bother them for repairs or credits now I get asked on a recurring basis from agent all the time because we have scenarios where a seller has agreed to an offer and it has is verbage in it and then the buyer comes back later and says you know what I actually want to repair or I want a credit for repair and restore says wait you said it would be as is what’s going on and so what I get when I get involved agent calls and says my seller is upset because the buyer said they’re buying it as is and now the buyers asking for a repair that is the buyer legally allowed to do that or can a seller is a seller have any obligation the short answer is this in terms of the the legal implication of this it it really is toothless because the buyer can still go back and renegotiate even if they have this provision and a seller can say well you said it was as is so I’m not going to do anything and the buyer can just walk and the buyer can cancel if they’re within their investigation. So this is this is more of just a formal statement of intention because in practice it it really doesn’t affect you ate anything because the buyer of course and you can always go back and renegotiate with the stellar and say look we didn’t know the the depth of repairs needed we didn’t know there was a cracked slab Foundation or something major that was unforeseen but came up during in but then desiccation. And that’s when the renegotiation can take place and the seller can can get upset and say hey you said as is nobody can say what yeah but I I didn’t know and if so I will say why not doing anything then the buyer can just say OK Google OK Google and if the buyer cancels during the investigation. As long as all the contingencies aren’t removed the buyer is entitled to a full refund of the earnest money deposit give questions about any of this just email info about our team and I’ll put that email address in the description all right we have the in NHD which is required by state law sometimes I see buyers try to wave it because there are just again trying to be very The Cellar this cannot be done this is not this is not an obligation customary obligation between the buyer and seller this is an obligation between the seller in the state of California to furnish the buyer just like when you get when you get the booklet from your credit card company of size 8 font print and you’re like I’m not going to read any of the dino V the updated terms of my credit card is a booklet but it’s a requirement the credit card company isn’t saying hey do you want to opt out of these disclosures they have an obligation by being from their regulatory agency to disclose to the buyer and the buyer can either eat it or throw it away or do whatever but the the the the credit card company or in this case the seller has has done their fulfill their legal obligation to disclose this cannot be waived remind spection now that can be waived this the table I have the seller paying for it often the buyer will waive it on on these investor type purchase offers or the buyer will pay for their own I put it in here just so I can bring up the topic it’s you know many cash purchases they don’t worry about termite because they already have a computer have in mind I’ll come take a look at it and they’re going to do termite repairs while they’re remodeling the house anyway but if you do want the start of pay for it that’s one small little headache for the seller you can ask for a here if not you leave it out and Termite will not be addressed whatsoever in the transaction rent check the box sellers to pay for smoke alarm and carbon monoxide detector installation and water heater water heater bracing because again like the NHD this is an obligation between the state and the seller to make sure that this is an order when the buyer takes occupancy and this is called a few times over the years word sellers asked early need to the buyers going to demo the whole thing and I say yes because it’s not being demoed instantaneously it’s required by law and should the buyer go in there on day one to do a demo or something happen if someone gets a poison or someone gets injured in Poison by by smoke inhalation of carbon dioxide in Ocean or injured by something to do with water heater that is the cell to be held liable if I not filling their their legal requirement so this should be done even if you’re in a rip out the entire inside the house this is not a big deal this deserve this is a very small head all right we move on and I had this filled out in a manner that’s customary for Southern California where each party pays their own escrow fee and the seller pays for the owner’s title policy for title insurance if you’re in Northern California it varies county-by-county even sometimes within counties there’s a customary variance I always say that it you know I’ll put a link but we have a guide and again you can eat you can request this from me and email but we have a guy that shows was customary for every county in the state of California and even when those County diverge like you have the north county does it one way South County has another way like they do an insert in counties in Northern California we can advise you on that again down here and fix this is the Southern California was customary cuz it’s more uniform in Southern California and there’s more variations in Northern California we have the seller paying for the transfers transfer fees if there’s an HOA Tesoro pay for it off and in a single-family home there’s not so you just leave it blank you know so when it comes to home warranty here so you’re selling worth bringing up I see investors have two different approaches on this is investor doesn’t care cuz you’re ripping out all the appliances just click buyer waves because let me go let me go back to the original objective or making this is easy on the seller’s possible so we have the buyer waive the home warranty plan which one listening to stars to pay for a worried about no sometimes investors say look this is an old place I have to redo the whole thing and the AC is on its last leg in the last thing I want to worry about is one more expense incurred with the AC going out so they asked for a home warranty paid for by the seller cuz they know it’s not a big deal and so apply roll their eyes and just say yes and they can have the AC or the water heater covered or a built-in Appliance and so for that reason homework you can go either way but it if you’re you as a buyer an investor a buyer want to weigh the home warranty just click that right there if not you can ask for it here and then you can probably get by asking for it because Even though our objective is to make this as easy and pleasing to the sellers possible this is this is not a major issue here and if there’s a stove refrigerator washer and dryer that you want included go check the boxes here this is entirely up to you as an investor in terms of what you do I will scroll down here buyer does not intend to check the box if you’re not going to occupy the property more boilerplate standard verbiage here and now we have an important section we’re coming up to and that is the fires investigation. Now here we have actually let me proceed that with the seller’s obligation to furnish the bar with disclosures if your cash buyer and you’re moving fast and you shorten the close of escrow to 14 days or less to give that the seller 7 days to give you the disclosure has that’s being a little bit too generous in my opinion you want to reduce this to 5 or maybe even 3 and that just basically said the seller has 3 or 5 or however many days you designate right here on in paragraph 14 a 2 give you the buyer as much information as they have on the Property Transfers close your statement that NHD we talked about up there LED Hazard disclosure water the add conserving Plumbing fixtures and carbon dioxide I mean the whole the whole list it seems to be delivered in this time. Here now considering that you as a buyer now we’ve already eliminated the appraisal contingency and we’ve eliminated the loan contingency so your loopholes as a fire have our closing up but here’s the last in a most important one on a cash offer how many days of Investigation do you have another standard verbage in the contract is 17 but I put 14 days as the escrow. Up top so this in an effect would mean that the buyer has investigation. 3 entire escrow any seller that is seasoned would end their agent would say that’s not acceptable this seems to be reduced because that that seller knows that you as the buyer size investor you can back out scot-free and get your EMD reimbursed refunded at any time within this. Actually within this. And up until you remove this disclosure in writing so if this is numbered days passes and you didn’t remove the contingency excuse me in writing then then the you as the buyer still that bad. Stays open it just continues on until you remove in writing so show from a 14-day escrow you can put buyer has 7 days or 10 days to do their investigations and this is in this time. This is when the buyer will have their contractor walkthrough with them or have inspector go through or have whatever specialist go through and really determine whether or not the condition is acceptable and if they want to do this because once this contingencies removed that’s when the deposit becomes non-refundable and the seller will be in breach excuse me the buyer will be in breach if they do not close escrow so it’s important to know that this is basically your last loophole it’s usually going to be half or three-quarters the length of the entire escrow. If you’re doing really short escrow now some investors because you can get aggressive as you want some people wave it like yours some show down here on the line see remove all contingencies with offer I think this is kind of I think this is too aggressive I’ve seen fires that put 3 days here or I think 3 to 7 that that’s the more aggressive and people that remove here I think are Reckless that there’s that there’s a kind of an advanced maneuver that you can do by removing it here because that if if you remove it here in this in the cellar gives you the a there disclosures when you’re in escrow will legally in California your your allotted several days to investigate and still potentially cancel so it’s kind of a it’s an advanced move it’s worth discussing separately because it it’s kind of like the topic but short of it is this is your loophole 14 be 1 the numbered days here for you to back out and get your DMV refunded this remove that loophole and and then it might have days here should be a percentage of the days of escrow that’s that’s short because the sellers thinking how committed is this buyer if the buyers going to sit on their hands for 14 days that makes the seller Color Berry nurse is a buyer says look I just need five days to get in get out with my inspector that’s reasonable so that needs to be considered All right so the right to cancel they say if the buyer breaches of silicon cancel with no super form all brother play cribbage going through here standard alright so this is 4 so you can initial here for liquidated damages which basically says that if you breach after all the contingency parents have passed and have been removed and the buyer breaches that the the earnest money deposit is his at risk of being taken by the seller 5 due to the reason of the the for damages they say for the by breaching all right and we have a mediation arbitration clause or parties initial initial third time on page eight of 10 down here at the bottom we’re almost done standard verbiage all right right now you’re saying we’re talking about because sometimes I see and this isn’t too often but when I do this is more of a problem with DocuSign or lack of knowing how to use DocuSign for that matter but I’ll see people sign like let’s say it’s XYZ loc tho sign x y z l o c in cursive you can’t sign a company name like that every so a company or Corporation or trust or whatever entity has an authorized signer that must be an individual and an individual is is you the authorized signer a living person the LLC doesn’t sign itself and needs an authorized person to sound its behalf so even though you print the name as Xyz loc your signature will be your name your John or Jane Doe whatever your name is you’ll sign your name and you could write your role, in the company you could if you’re a trustee could say Jane Doe, trustee that’s not that important to put your title because it’s implied because you have your entity name here and your personal name there and it’s pretty straightforward that this person this individual’s name is going to be but I the signer or every sanative of this entity down here so important station with make everyone signs off and your offer is ready to go this is all just more was a lot of standard document it just grows every year all right so title signed waiver the fire signs on the show where the buyer Nationals and these are your personal signatures and initials not not any sort of abbreviation or or signature of the company name I’m going to do a separate video in a separate video is going to show a representative capacity disclosure and this is basically a one-page document but text you two pages but the document shows who the authorized signer is and their respective entity in which they’re authorized to sign for and you would have company at all actually they even mention it here so if it’s sellers signing the with a representative see Cyrus culture will check that box but in short if a if a buyer or seller is signing on behalf of a company Corporation or or a trust they should have that document that basically just connects the dots says Jane Doe is a trustee of this trust or Jane Doe is a member of this LLC or Jane Doe is an officer of this Corporation but that’s that’s a small formality that can be addressed later the the bulk of this is writing this offer as accommodating pleasing and easy to the to the seller as possible and and getting it off and then one last tip staying closed communication for listing agent your report the listing agent is going to be a big factor in getting your offer accepted you really have to politely and tenaciously stay in communication without lifting agent and really make a case for your offer get accepted and you can even ask for their guidance on what terms and how aggressive you want to get now is an extremely aggressive time for buyers so it’s why you see people doing no contingency what whatsoever me scroll back down to a paragraph 14 right there 14 see I’ll talk to you