The cash purchase contract, line by line, before you sign it

The contract that comes with a cash offer is usually short, sometimes a two-page thing the buyer typed himself. Don't let the length fool you. When I was still signing off closing statements, the trouble was never on page one, where the price is. It was on page four, in a clause the seller skimmed because it looked like boilerplate.

Here's how I read one.

Price, earnest money, and where the money sits

The line under the price matters more: the earnest money deposit, how much, by when, and where it goes.

Where it goes is the whole question. The deposit goes to the escrow holder, which in Northern California is almost always the escrow department of a title company, within a stated number of days after acceptance. Not to the buyer, and not to the buyer's "company account" to be moved over later. If the contract names no escrow holder, stop.

We had one in Millbrae, I want to say 2006 or 2007, where the seller let the buyer hold his own deposit because the buyer said his bookkeeper was on vacation and he'd wire it "as soon as she's back." She was apparently gone a long time. The seller called our office every few days asking if it had come in, and I kept telling him we'd never been sent instructions to receive it, which he didn't seem to understand was the actual problem. The buyer cancelled in the seventh week, citing the inspection. There was nothing to forfeit because nothing had ever left his hands. The seller re-listed with an agent the next spring; I never heard what it went for.

The amount should sting if the buyer walks without cause. A few thousand dollars on a $1,200,000 house doesn't.

Inspection contingency and what "as-is" means here

Cash buyers say "as-is" and sellers hear "no inspection." That's not what it means.

An inspection contingency gives the buyer a number of days to look at the house and cancel for any reason with the deposit returned. Ten days is normal. Seventeen is what the standard California forms default to. Thirty is a wholesaler buying time to find his real buyer, and I'll get to him.

As-is means the seller isn't agreeing to fix anything. It doesn't cancel your duty to disclose. California requires the seller of most one-to-four-unit residential property to deliver a written Transfer Disclosure Statement and to tell the buyer about known material defects, and an as-is clause doesn't waive that. The DRE's consumer information explains the forms. If you know the crawl space floods in February, put it in writing, even for a flipper who says he doesn't care. Especially for him; he's the one who sues after he opens the walls.

The assignment clause

Look for the words "and/or assigns" after the buyer's name, or a paragraph saying the buyer may assign the contract. This is the wholesaler's fingerprint. The person signing doesn't intend to buy your house. He intends to sell his position in the contract to someone who will.

Assignment on its own isn't fraud. But an assignable contract plus a long inspection period plus no proof of funds means you're under contract with a marketing effort, not with a buyer. If that bothers you, strike the clause and see how he reacts.

Closing date, possession, and the days after

The closing date is when the deed records with the county. Possession is when you hand over the keys, and the contract should say whether that's the same day or later under a rent-back.

One real advantage of a cash deal is that the date can float to suit the seller, since there's no lender rate lock forcing the calendar. If you're dealing with a buyer whose pages say you can sell for cash and pick the closing date, hold them to it: the date you picked belongs in the contract, with the rent-back terms next to it if you need a few weeks to pack.

Credits and repair requests after inspection

Even on an as-is contract, a buyer can come back after inspection and ask for a price cut or a credit. No contract stops them asking. What the contract can do is set what happens when they do: how many days you have to respond, and whether refusing lets them cancel.

The pattern I saw most often: buyer offers high, ties up the house, comes back on day nine with a $70,000 "foundation surprise." If a buyer's repair number rests on a contractor's bid, ask for the bid and run the license through the CSLB contractor license check. An unlicensed bid is worth about what you paid for it.

Who pays what in San Mateo and Santa Clara counties

The contract has a section allocating costs. Read it against local custom, but the contract wins; custom is only what happens when the contract is silent.

Transfer tax has two layers. The county collects a documentary transfer tax when the deed records; in San Mateo County the Assessor-County Clerk-Recorder's office collects it, and some cities in both counties add a city transfer tax on top. Custom on the Peninsula and in the South Bay mostly has the seller paying the county tax, with the city tax going whichever way the contract says. A cash buyer offering to pay all closing costs is really offering you a few thousand dollars, so price it like a few thousand dollars. San Francisco's tiered rates, published by its Office of the Assessor-Recorder, show how large a city tax can get.

Escrow fees, title insurance, notary, recording: each gets a line. Ask the escrow officer for an estimated closing statement before you sign, not the day before recording.

Escrow, title, proof of funds, and the walk-away

The buyer will usually name the escrow and title company. That's normal. It stops being normal if the company is one you can't find, or the buyer insists on an out-of-area escrow "we always use." With a lender, the CFPB's mortgage consumer tools explain the closing disclosure; on a cash deal you get an escrow closing statement instead, and you read it just as hard.

Proof of funds means a recent bank or brokerage statement, in the name of the entity on the contract, showing enough to close. A letter from a "funding partner" isn't that, and neither is a screenshot. The contract should require it within days of acceptance and let you cancel if it never arrives.

The walk-away is the last thing I check. The buyer's is the inspection contingency. Yours, once you sign, usually doesn't exist, which is the point of a contract. If the paperwork doesn't match the phone call, or the assignment clause is in there and nobody mentioned it, you can still say no.