What is the Liquidated Damages clause in the purchase contract?

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Paragraph 29 of the California Residential Purchase Agreement

What are liquidated damages?

A liquidated damages provision in an agreement provides for a buyer to owe a specified amount of money to a seller in the event the buyer breaches the contract. For example, if a deposit of $5,000 is placed in escrow, and the liquidated damages provision is initialed by both buyer and seller, and then the buyer breaches the contract, the seller will be entitled to the $5,000 as liquidated damages.

It does not matter whether the seller has incurred an actual loss that is more or less than $5,000.The purpose of the provision is to set the amount of damages in advance so that proof of actual loss is not necessary.

Does a liquidated damages provision automatically entitle the seller to the buyer’s deposit if a transaction does not close?

Generally, no. A liquidated damages provision only determines the amount of money a seller canrecover from a buyer, and then only if the seller can prove the buyer breached the contract. A buyer may fail to close a transaction for a variety of acceptable reasons (e.g., where there is a financing contingency and the buyer could not reasonably obtain financing). To recover liquidated damages, the seller generally must prove in court or arbitration that the buyer’s failure to close the transaction was a breach.

May the parties agree, in advance, that the buyer will pay a non-refundable deposit in the event of breach?

Generally, no. The law does not permit contracts to impose penalties or forfeitures, including a nonrefundable deposit, for breach absent gross negligence or willful or fraudulent breach.. In general, judges are reluctant to enforce penalty or forfeiture provisions where they are inconsistent with the likely actual damages incurred. Additionally, the RPA-CA’s language does not permit such clauses. Under paragraph 21A of the RPACA, any added clause specifying a remedy for a buyer breach, such as a non-refundable deposit or a forfeiture of the deposit, will be invalid if the added clause does not independently comply with the Civil Code’s liquidated damages rules.

If a buyer makes more than one deposit pursuant to a purchase contract, will a liquidated damages clause entitle a seller to the buyer’s combined deposits if the buyer defaults?

Not necessarily. If the real property being sold is a dwelling containing not more than four residential units and the buyer intends to occupy one as a residence at the time the purchase contract is made, then each payment that is to be part of the liquidated damages to the seller must be separately signed or initialed in a properly formatted liquidated damages clause. In addition, if the total of all such deposits exceeds 3% of the purchase price, the seller could be limited to 3% even if more is deposited. The C.A.R. form Increased Deposit/Liquidated Damages Addendum (C.A.R. Form RID) should be signed at the time an additional deposit is made during escrow in order to make any additional payments part of the liquidated damages.

For the Liquidated Damages clause to be in effect, both buyer and seller must initial the paragraph. Neither is required to do so.

Common ways to take title to California residential property

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The completion and accuracy of this form is very important. This will indicate to the Escrow Officer or Title Officer how title will be held to the property. ‘How you hold title to your property can have serious tax consequences. It is strongly recommended that you seek tax and / or legal counsel when completing this form’. The Escrow Officer or Title Officer will not be able to advise you on the completion of this document.

The completion and accuracy of this form is very important. This will indicate to the Escrow Officer or Title Officer how title will be held to the property. ‘How you hold title to your property can have serious tax consequences. It is strongly recommended that you seek tax and / or legal counsel when completing this form’. The Escrow Officer or Title Officer will not be able to advise you on the completion of this document.

vesting-ways-to-take-title

Why you need Title Insurance

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Why you need title insurance. Title problems can surface after you close on your home and affect your homeownership rights. Some of the more common title problems include:

  1. Errors in public records, like a filing mistake or inaccuracy on a former deed
  2. Unknown liens resulting from unpaid debts of former owners
  3. Missing heirs who come forward years after the owner passes away and you’ve purchased the home
  4. Forgeries, like forged or falsified documents
  5. Survey or boundary issues that may affect your ownership and cause disputes

Title professionals are skilled at identifying—and curing, if possible—these types of problems and countless others before you take ownership. Your title policy then serves to help protect you from those issues that may still remain undiscovered.

Other potential Title problems:  70+ Ways to Lose Your Property

Home Value Update: September 2024

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U.S. existing-home sales slid 2.5% month-over-month and 4.2% year-over- year to a seasonally adjusted annual rate of 3.86 million units, according to the National Association of REALTORS® (NAR). Meanwhile, home prices have continued to reach record heights nationwide, with NAR reporting a median sales price of $416,700 as of last measure, a 3.1% increase from the same time last year and a new high for the month.

Amid slower home sales, inventory has continued to grow across the country. According to NAR, there were 1.35 million units for sale heading into September, a 0.7% increase from the previous month and a 22.7% jump from the same time last year. And while monthly existing-home sales were lower than expected this period, NAR Chief Economist Lawrence Yun believes that the rise in inventory, along with lower mortgage rates, should help sales improve in the months ahead.

North San Diego County Stats for September:

  • Closed Sales increased 0.2 percent for Detached homes but decreased 3.4 percent for Attached homes.
  • Pending Sales increased 12.0 percent for Detached homes and 2.0 percent for Attached homes.
  • The Median Sales Price was up 7.8 percent to $1,200,000 for Detached homes and 5.2 percent to $749,000 for Attached homes.
  • Days on Market increased 16.0 percent for Detached homes and 100.0 percent for Attached
  • homes.
  • Supply increased 13.0 percent for Detached homes and 31.6 percent for Attached homes.

The numbers by city:
These numbers are for Single Family Detached homes and do not include Attached Homes, aka condos and townhomes.
DOM = Days on Market
% List Price = Percentage of the original list price that the home sold for.

Carlsbad

MonthAvg Sold $ChgDOMChgSold
Homes		ChgActive
Listings		Chg%
List Price		YoY Chg
09/24$1,950,0001%2817%1888%126-2%96.6%10.9%
08/24$1,934,000-1%249%174-5%1282%97.5%6.6%
07/24$1,948,000-3%2222%1832%1257%98.9%4.7%
06/24$1,999,000-1%18-5%179-5%11717%100.0%4.1%
05/24$2,024,000-1%19-5%18911%10018%100.4%6.5%
04/24$2,039,0004%20-17%17120%858%100.5%13.7%
03/24$1,960,000-3%24-4%14221%795%100.1%18.3%
02/24$2,024,0001%25-14%11717%75-12%99.4%27.0%
01/24$2,005,000-0%2912%100-2%85-6%97.7%25.5%
12/23$2,013,00012%26-4%102-20%90-10%96.9%24.0%
11/23$1,795,0001%2723%128-15%1004%97.2%13.1%
10/23$1,778,0001%2216%151-19%96-5%98.3%10.2%
09/23$1,759,000-3%1927%186-3%101-3%98.5%3.3%
08/23$1,815,000-2%157%1917%1041%99.6%0.7%
07/23$1,861,000-3%140%17915%1036%100.0%2.2%
06/23$1,920,0001%14-26%156-3%9723%100.3%3.0%
05/23$1,900,0006%19-17%16115%7922%100.0%2.4%
04/23$1,793,0008%23-26%1409%655%98.4%-0.8%
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Mediation and Arbitration Clause in the Purchase Agreement

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Mediation clease from CAR RPA

What is Mediation?

Mediation is a structured, interactive process where an impartial third party assists disputing parties in resolving conflict through the use of specialized communication and negotiation techniques. All participants in mediation are encouraged to actively participate in the process. Mediation is a “party-centered” process in that it is focused primarily upon the needs, rights, and interests of the parties. The mediator uses a wide variety of techniques to guide the process in a constructive direction and to help the parties find their optimal solution. A mediator is facilitative in that he manages the interaction between parties and facilitates open communication. Mediation is also evaluative in that the mediator analyzes issues and relevant norms (“reality-testing”), while refraining from providing prescriptive advice to the parties (e.g., “You should do…”).

In the context of real estate purchase contracts, buyers may have a claim against the seller for failure to disclose a property condition or sellers may be claiming entitlement to the buyer’s deposit on a failed purchase.

The settlement is a voluntary, mutual decision that the parties decide they can all live with.

Arbitration clause from CAR RPA

2. What is Arbitration?

Arbitration does not involve a voluntary, mutual decision by the parties. Instead, the parties agree to designate an arbitrator (again, a retired judge or experienced attorney) who will make a unilateral decision after hearing evidence.

The parties will give testimony, present evidence, and at the conclusion of the presentations the arbitrator will render his or her “award.” In short, it is a private trial taking place in a conference room instead of a courtroom, the parties are paying the arbitrator by the hour and there will be a winner and a loser.

An arbitration decision or award is legally binding on both sides and enforceable in the courts

3. How do mediation and arbitration provisions work in real estate contracts?

The CAR RPA (Residential Purchase Agreement) mediation provision is mandatory. Meaning, you must go through mediation before arbitration or suing in court. The arbitration provision is voluntary and both buyer AND seller must initial for it to be enforceable.

The 30-Year Fixed-Rate Mortgage Reaches Lowest Level in Two Years

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Although this week’s decline was slight, the 30-year fixed-rate mortgage trended down to its lowest level in two years. Given the downward trajectory of rates, refinance activity continues to pick up, creating opportunities for many homeowners to trim their monthly mortgage payment. Meanwhile, many looking to purchase a home are playing the waiting game to see if rates decrease further as additional economic data is released over the next several weeks.

All content is subject to change without notice. All content is provided on an “as is” basis, with no warranties of any kind whatsoever. Information from this document may be used with proper attribution. Alteration of this document or its content is strictly prohibited. © 2024 by Freddie Mac.

The Termite Inspection & Clearance

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Having a termite inspection is vital, especially here in California where most homes are made from wood and stucco. Unless the home is new construction, don’t forgo having a termite inspection. This will ensure that the investment in the home is sound and alert you to any problems from pests.

Generally, the home seller is responsible for hiring a termite inspector and supplying the inspection report to the buyer.

If there is no evidence of termites, this is called having ‘clearance’ and the lender will need to be provided with this information to satisfy the condition of the loan. The reason some lenders require this report is to ensure that they are issuing a loan on a property that’s a good investment and in good condition.

Along with termites, the inspector is checking for things like dry rot, fungus, and any other issues that come with damage to wood. The inspector will look at the interior and exterior areas of your home and check for any visible signs of a termite infestation.

As you can imagine, this is extremely important because no one is going to want to invest in a home that has been structurally damaged. You want the report to disclose that the home is solid and has good structural integrity.

Reviewing the Termite Inspection Report

The termite inspection report is made up of 2 parts: 

Section 1:

Items where there is evidence of:

  • Active infestation
  • Infection
  • Conditions resulting from or caused by infestation or infection
  • These issues require immediate attention and are typically considered serious enough to impact the structure’s integrity or pose a significant risk to the occupants.

Section 2:

Items deemed likely to lead to infestation or infection, but where no visible evidence of such was found

  • These conditions may not be actively infested but have the potential to become a problem if left untreated
  • Section 2 repairs are often considered optional and may or may not be required by a lending institution for loan approval

In summary, Section 1 addresses urgent, active termite issues that require prompt attention, while Section 2 identifies potential risks or precursors to termite infestation that may or may not require immediate action.

 

How much does it cost to sell a home in California?

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Selling a home in California can be a complex and costly process. Here’s a breakdown of the estimated costs you may incur:

Title service and insurance: .25% Of sale price

  • Title fees cover the costs of the title search and title transfer.
  • Owner’s title insurance protects the buyer if there’s a problem with the property title. It will pay for any legal fees if mistakes are found — or potentially even reimburse the value of the home.

Escrow Fee’s: .208% of sale price

  • Holds and manages funds: The escrow company holds the buyer’s good faith deposit (also known as earnest money), down payment, and closing costs until all conditions of the sale are met.
  • Protects buyer’s deposit: The escrow company ensures that the buyer’s deposit is safely held and only released to the seller once the sale is complete and all contingencies have been satisfied.
  • Facilitates transfer of ownership: The escrow company manages the transfer of title and property ownership, ensuring a seamless transition from seller to buyer.
  • Verifies and disburses funds: Upon completion of the sale, the escrow company verifies that all conditions have been met and then disburses the funds to the appropriate parties, such as the seller, lender, or title company.
  • Maintains neutrality: To avoid any conflict of interest, an escrow officer or title company manages the account, ensuring that all parties involved in the transaction are treated fairly and impartially.

Recording fee’s and Taxes: .12% of sale price

  • Mortgage recoding fee
  • Lien release recording fee
  • Transfer tax

Realtor Fee’s: 5%

Property Taxes: Whether this is a debit or credit depends on when the home is sold during the tax year, July 1st to the following June 30th, and if the tax installment has been paid. It is hard to generalize this number as there are many variables: HOA dues, Mello Roos fee’s and other special assessments that not all properties have. Generally, if you sell between July 1st and February 1st of the following year you will have a property tax bill as part of your closing costs. If you sell between February 1st and June 30th, you will receive a credit from the buyer for property taxes you have already paid.

Here is a breakdown of costs for various selling prices. And don’t forget, this is only the cost of selling breakdown, you still have to subtract whatever is owed to the mortgage company for loan payoff to get your ‘Net’, i.e. how much you walk away with.

Remember, this is an estimate:

Sale PriceTitle Fee’sEscrow Fee’sRecording Fee’sRealtor Fee’sTotal
$500,000$1,250$1,040$600$25,000$27,890
$750,000$1,875$1,560$900$37,500$41,835
$1,000,000$2,500$2,080$1,200$50,000$55,780
$1,250,000$3,125$2,600$1,500$62,500$69,725
$1,500,000$3,750$3,120$1,800$75,000$83,670
$2,000,000$5,000$4,160$2,400$100,000$111,560

Mortgage Rates Remain at the Lowest Level in Over a Year

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While rates increased slightly this week, they remain more than half a percent lower than the same time last year. In 2023, the 30-year fixed-rate mortgage nearly hit 8 percent, slamming the brakes on the housing market. Now, the 30-year fixed-rate hovers around 6.5 percent and will likely trend down in the coming months as inflation continues to slow. Lower rates are good news for potential buyers and sellers alike.

All content is subject to change without notice. All content is provided on an “as is” basis, with no warranties of any kind whatsoever. Information from this document may be used with proper attribution. Alteration of this document or its content is strictly prohibited. © 2024 by Freddie Mac.

Home Value Update: July 2024

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U.S. existing home sales fell 5.4% month-over-month and 5.4% year-over- year to a seasonally adjusted annual rate of 3.89 million units, with monthly sales down in all four regions, according to the National Association of REALTORS® (NAR). Higher mortgage rates, along with rising sales prices, have kept many prospective buyers on the sidelines, despite more home choices and less competition for those homes.

Home prices have maintained their upward trend across much of the country, even as sales slow and inventory improves. According to NAR, the national median existing-home sales price climbed 4.1% year-over-year to $426,900 as of last measure, an all-time high. Meanwhile, total housing inventory
increased 3.1% month-over-month to 1.32 million units heading into July, the highest level since 2020, for a 4.1-month supply at the current sales pace.

North San Diego County Stats:

  • Closed Sales increased 6.9 percent for Detached homes and 14.8 percent for Attached homes.
  • Pending Sales decreased 5.2 percent for Detached homes but increased 20.3 percent for Attached homes.
  • The Median Sales Price was up 4.0 percent to $1,170,000 for Detached homes and 9.0 percent to $765,000 for Attached homes.
  • Days on Market increased 14.3 percent for Detached homes and 37.5 percent for Attached homes.
  • Supply increased 13.6 percent for Detached homes and 35.3 percent for Attached homes.

The numbers by city:
These numbers are for Single Family Detached homes and do not include
Attached Homes, aka condos and townhomes.
DOM = Days on Market
% List Price = Percentage of the original list price that the home sold for.

Carlsbad

MonthAvg Sold $ChgDOMChgSold
Homes		ChgActive
Listings		Chg%
List Price		YoY Chg
07/24$1,948,000 -3%2222%1832%1257%98.9%4.7%
06/24$1,999,000 -1%18-5%179-5%11717%100.0%4.1%
05/24$2,024,000 -1%19-5%18911%10018%100.4%6.5%
04/24$2,039,000 4%20-17%17120%858%100.5%13.7%
03/24$1,960,000 -3%24-4%14221%795%100.1%18.3%
02/24$2,024,000 1%25-14%11717%75-12%99.4%27.0%
01/24$2,005,000 -0%2912%100-2%85-6%97.7%25.5%
12/23$2,013,000 12%26-4%102-20%90-10%96.9%24.0%
11/23$1,795,000 1%2723%128-15%1004%97.2%13.1%
10/23$1,778,000 1%2216%151-19%96-5%98.3%10.2%
09/23$1,759,000 -3%1927%186-3%101-3%98.5%3.3%
08/23$1,815,000 -2%157%1917%1041%99.6%0.7%
07/23$1,861,000 -3%140%17915%1036%100.0%2.2%
06/23$1,920,000 1%14-26%156-3%9723%100.3%3.0%
05/23$1,900,000 6%19-17%16115%7922%100.0%2.4%
04/23$1,793,000 8%23-26%1409%655%98.4%-0.8%
03/23$1,657,000 4%310%12835%62-2%96.9%0.8%
02/23$1,594,000 -0%3111%95-17%63-19%95.5%5.1%
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