Top California Real Estate Contract Mistakes And How To Avoid Them
Nicholas Jacobs • January 22, 2025
Purchasing a home or other property is among the most significant purchases a person can make. Real estate transactions are also complex and time-consuming. Therefore, it's critical you avoid the following real estate contract mistakes to ensure a smooth transaction:
Failing to Disclose Known Defects
Sellers are legally required to disclose any known material defects with the property. Disclosure is not optional. What I see as the most significant point of confusion is what is considered a material defect. So, what is a material defect? A material defect is an issue withthe property that could significantly impact the property's value or pose a danger to people. Even this definition may not be precise enough for some. Therefore, my advice would be to air on the side of disclosure. It's better than having the contract canceled or, worse, being sued later.
Example:
John is selling his home. John is aware that the basement of his house has a long history of flooding when it rains. John sells the home to Sally without disclosing the basement's history of flooding. Because the basement flooding is a material defect, Sally could recover damages from John for his failure to disclose.
Incorrect Use of Names
It may seem obvious that using the correct name would be necessary on a contract as significant as purchasing a home. However, people often neglect to use their full legal name instead of their shorthand name. They may forget the middle initial or suffixes like Jr. or Sr., or they may forget to use the correct name of their business entity. Don't let small mistakes like these lead to delays or future complications.
Example: Nicholas M. Jackson purchased a home but signed the contract as "Nick Jackson, " the name he usually goes by. The omission of his full legal name and middle initial led to significant confusion and delays in his home-buying process.
Ambiguous Payment Terms
The enemy of all contracts is ambiguity, which is no exception for real estate contracts. The obvious terms one would expect to be unambiguous include earnest money deposits, performance dates, and closing costs. Most often, these terms are not ambiguous. However, many agreements fail to specify other important terms, such as what fixtures will be included in the property, such as a gazebo or appliances. What is considered reasonable repair, or what is considered "clean?" What are acceptable payment methods? Therefore, the takeaway is to be as clear and precise as possible with all terms in the contract.
Example: Sally, who signed a contract to purchase a house with "fixures included." However, the contract did not express what a fixture was or what specific items were considered fixtures. Therefore, Sally was surprised to learn that an outdoor gazebo was not included, despite Sally's fondness for it. The ambiguity leads to disputes and delays in the closing process.
Unwritten Agreements
Although written agreements are recommended for any contract, they are a requirement in real estate contracts. Oral agreements often become a problem during the negotiation stage of the parties. One party will verbally agree to something to move the needle. However, the verbal agreement is not in the contract after the contract is signed and, therefore, would not be enforceable. Thus, if you want something, include it in the written contract.
Example:
Bob, the buyer, negotiates with Sam, the seller, to fix a leaky roof before closing. Sam wants to avoid conflict and, therefore, verbally agrees to repair. However, Sam did not repair the roof even after closing it. Because the agreement was not in writing, Bob cannot enforce it.
Unclear Contingencies
A nightmare scenario for a buyer is purchasing a home and finding something materially wrong like terminates or structural issues. Therefore, I recommend you have an inspection and include specific terms in the contract regarding what happens if a material defect is uncovered. The more precise the contract, the less likely disputes will arise.
Example: Robert, a homebuyer, purchases a home contingent upon a "satisfactory inspection." However, the contract fails to define what a "satisfactory inspection: is. Therefore, when Robert uncovers a termite problem during an inspection, the seller disputes Robert's claim that the inspection was unsatisfactory.
Conclusion
Buying or selling real property can be both exciting and stressful. However, avoiding these common mistakes can free you from unnecessary delays and legal predicaments. Consulting with an attorney is recommended to provide legal guidance and avoid legal complications.
First Thing to Do and What You Can't Do Divorce is more than a personal and emotional shift; it is a legal and financial shift that will substantially impact your estate plan. Without proper action, your assets may end up in the wrong hands. Therefore, there are steps that you must take if you are in the process of a divorce or are already divorced. The first step is to review your prior estate plan after your divorce. If your divorce is still pending, you cannot change your current estate plan, except for a few exceptions. The rationale is that your spouse likely has an interest in the assets of your estate plan. Our legal system does not want spouses shielding their assets until the divorce is final. This is particularly true in California because California is a community property state, meaning thatall assets acquired during the marriage, other than outside bequests or inheritances, belong equally to the spouses. However, you can generally still revoke your Last Will and Testament, but you can only create a new one if you only devise your separate property and have half interest in the community property. You can create a new trust if you don't fund it until the divorce is final. Funding means to put assets inside the trust, usually by changing the title to the asset to the name of the trust. As you can see, there are many legal nuances here.
How AI Works AI generates its responses through sorting through large quantities of data on the internet. This can include websites, novels, blogs, and sites like Facebook. This is a 1000-foot view of what AI does and is not meant to minimize the technology. However, understanding the basics is important to answer whether one should use AI to generate an estate plan. Why This matters? An estate plan is among the most personal legal endeavors a person will take. That’s because it is highly individualized and rarely are two estates the same. Clients have various intentions for how they want their estate to be distributed, often not based on what would seem logical, but instead on very personal beliefs. Clients also vary on how they want their estate handled if they are incapacitated for example, or how their pets are to be cared for, end-of-life decisions, and the list goes on and on. While an AI or software program can ask some of these questions, they will not read a client like an experienced attorney who will proactively investigate and inquire. For these reasons, AI often struggles with answering highly individualized questions. This is because AI thrives on generalizations since it gathers its data in the aggregate. This can be even more of a concern if the user is not savvy with AI. It’s often said in AI communities that an AI is only as good as the questions it's asked. AI Accuracy I’d bet most users vastly different testimony regarding AI accuracy. Some may point to different AI versions or programs having varying levels of accuracy. Based on my experience, the accuracy is often correlated with the subject matter. The more general question, the more precise. Legal nuisances, partly grey areas, are where I have noticed the most struggles with AI accuracy. Like most of you, I’d wager that AI will become more accurate with time. However, will it ever be accurate enough to bet your estate on? I say this because even if an AI is 99% accurate, it may be that 1% that makes the difference. Remember that AI owes you no legal duty whereas an attorney is accountable for their work.
What is Step Up in Basis and Why is it Important? The step-up in basis rule can dramatically reduce capital gains tax when an asset is sold after inheritance. Normally, an asset is calculated based on the original cost of the asset, not the current value. However, when an asset receives a step-up in basis when a person dies, that cost is readjusted based on its current market value, rather than the original cost. This can be critical since a piece of real estate that was bought, for example, in the 1990s, could save thousands if not millions, of dollars in tax on capital gains. Example Your parents bought a house for $100,000 ten years ago and the house is worth $500,000 when they die. Without a step-up in basis, if the house was sold there would be a capital gains tax on the $400,000, the house's appreciation. But with a proper strategy, when you inherit the house, the ‘basis’ (cost) is automatically ‘stepped’ up to the current value. If you then turn around and sell it for the same price, $500,000, you pay no capital gains tax. Holding Title and Step Up in Basis How a property's title is held might mean different tax results. These are the three common ways in which title can be held in California, joint tenancy, tenancy in common, and community property with the right of survivorship.
In today's digital age, we have more than just physical possessions to consider when planning for the future. Digital assets are electronic records that hold monetary value or sentimental importance, such as cryptocurrencies, online accounts, photos, videos, and documents. Additionally, these are assets that are acquired throughout one’s life and are often irreplaceable. Personally, I have acquired substantial digital assets throughout my life that are of great sentimental value to me, such as digital photos of my family. I’m sure most of you are in the same position. Here are some of the reasons why digital assets matter for estate planning: Digital currencies that operate independently of central authorities, like Cryptocurrency, may have significant monetary value. They are stored in digital wallets that require keys, passwords, or codes to access. Additionally, this should be included in your estate plans and provided to the executors or trustees with the necessary information to access them; otherwise, they may be lost forever or inaccessible to your heirs. Further, these are more difficult to track than standard currencies since they are not stored in a traditional bank like most currencies. It's best to make the management of digital currencies as easy as possible for your heirs. Digital assets are also vulnerable to data breaches, hacking, or theft. These types of breaches can become increasingly elaborate with technology and time. Therefore, without proper planning, you may lose access to valuable or sensitive digital assets, such as bank accounts, investments, or personal information. To prevent this, ensure secure storage and documentation of their digital assets and provide their executors with the means to access them. Moreover, they should also review the terms of service and privacy policies of the custodians of their digital assets, such as online platforms, cloud services, or apps, to understand their rights and obligations regarding their digital assets. Additionally, paid third-party assistance can also be used for assistance with breaches. I have personally experienced invasive breaches of digital assets and it’s a headache to deal with. Your heirs would appreciate not having to deal with these obstacles in a time of grieving. The Importance of digital photos cannot be understated. In our interconnected world, most of our cherished memories are captured digitally. This includes things like family photos, videos, and personal documents. You may want to preserve them for posterity, share them with loved ones, or even delete them for privacy reasons. Moreover, these photos can be on many platforms or cloud devices, such as Facebook or Google Drive for example. You should include them in your estate plans and provide the executors or trustees with the instructions and access to them. I personally have thousands of photos and I would be devastated if they were lost or inaccessible.
Understanding Proposition 19 Proposition 19 was enacted in California at the end of 2020 and created substantial obstacles for homeowners to avoid reassessment of their property. This is significant because, under Proposition 13, property taxes are limited to 2 percent annually absent a change in ownership. This can be a massive benefit, particularly in California, where it’s common for homeowners to have purchased their property at a time when home values were much lower, and therefore, so would their property taxes. However, absent an exception, if there is a change of ownership under Proposition 13 the property would be reassessed. In a nutshell, what Proposition 19 does is severely limit these exclusions. The current exclusions under Proposition 19 include victims of disasters, disabled persons, persons over 55 years of age, parent to child, and grandparent to grandchild.
Learn how to transfer your business into a trust with our comprehensive guide. Discover the benefits of avoiding probate, protecting your assets, and ensuring business continuity. Whether you have an LLC, general partnership, sole proprietorship, or corporation, we provide step-by-step instructions and highlight potential issues to consider. Maximize your estate planning strategy and secure your business's future. Consult with our expert attorneys for personalized advice on transferring your business into a trust.
Navigating estate planning for blended families can be complex and challenging. This comprehensive guide covers essential considerations, including guardianship decisions, fair asset division, and inheritance rights. Discover effective strategies like establishing trusts, making direct gifts, and ensuring open communication to protect your loved ones and minimize conflicts. Learn about the benefits and drawbacks of different trust structures, such as revocable trusts and A/B trusts, and how to leverage life insurance and separate accounts for smoother transitions. Consult with an estate planning attorney to create a customized plan that addresses your family's unique needs and ensures peace of mind.
Starting a business in California? This guide helps you choose the ideal legal structure for your venture, whether it's a C Corporation, S Corporation, LLC, Sole Proprietorship, or Partnership. Learn about the pros and cons of each entity, focusing on liability protection, taxes, and growth potential. Discover expert tips to make an informed decision that safeguards your personal assets and aligns with your business goals. Get insights into the complexities of double taxation, eligibility criteria, and investment opportunities. Consult with legal and tax professionals to ensure the best start for your California business.
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First Thing to Do and What You Can't Do Divorce is more than a personal and emotional shift; it is a legal and financial shift that will substantially impact your estate plan. Without proper action, your assets may end up in the wrong hands. Therefore, there are steps that you must take if you are in the process of a divorce or are already divorced. The first step is to review your prior estate plan after your divorce. If your divorce is still pending, you cannot change your current estate plan, except for a few exceptions. The rationale is that your spouse likely has an interest in the assets of your estate plan. Our legal system does not want spouses shielding their assets until the divorce is final. This is particularly true in California because California is a community property state, meaning thatall assets acquired during the marriage, other than outside bequests or inheritances, belong equally to the spouses. However, you can generally still revoke your Last Will and Testament, but you can only create a new one if you only devise your separate property and have half interest in the community property. You can create a new trust if you don't fund it until the divorce is final. Funding means to put assets inside the trust, usually by changing the title to the asset to the name of the trust. As you can see, there are many legal nuances here.
How AI Works AI generates its responses through sorting through large quantities of data on the internet. This can include websites, novels, blogs, and sites like Facebook. This is a 1000-foot view of what AI does and is not meant to minimize the technology. However, understanding the basics is important to answer whether one should use AI to generate an estate plan. Why This matters? An estate plan is among the most personal legal endeavors a person will take. That’s because it is highly individualized and rarely are two estates the same. Clients have various intentions for how they want their estate to be distributed, often not based on what would seem logical, but instead on very personal beliefs. Clients also vary on how they want their estate handled if they are incapacitated for example, or how their pets are to be cared for, end-of-life decisions, and the list goes on and on. While an AI or software program can ask some of these questions, they will not read a client like an experienced attorney who will proactively investigate and inquire. For these reasons, AI often struggles with answering highly individualized questions. This is because AI thrives on generalizations since it gathers its data in the aggregate. This can be even more of a concern if the user is not savvy with AI. It’s often said in AI communities that an AI is only as good as the questions it's asked. AI Accuracy I’d bet most users vastly different testimony regarding AI accuracy. Some may point to different AI versions or programs having varying levels of accuracy. Based on my experience, the accuracy is often correlated with the subject matter. The more general question, the more precise. Legal nuisances, partly grey areas, are where I have noticed the most struggles with AI accuracy. Like most of you, I’d wager that AI will become more accurate with time. However, will it ever be accurate enough to bet your estate on? I say this because even if an AI is 99% accurate, it may be that 1% that makes the difference. Remember that AI owes you no legal duty whereas an attorney is accountable for their work.
What is Step Up in Basis and Why is it Important? The step-up in basis rule can dramatically reduce capital gains tax when an asset is sold after inheritance. Normally, an asset is calculated based on the original cost of the asset, not the current value. However, when an asset receives a step-up in basis when a person dies, that cost is readjusted based on its current market value, rather than the original cost. This can be critical since a piece of real estate that was bought, for example, in the 1990s, could save thousands if not millions, of dollars in tax on capital gains. Example Your parents bought a house for $100,000 ten years ago and the house is worth $500,000 when they die. Without a step-up in basis, if the house was sold there would be a capital gains tax on the $400,000, the house's appreciation. But with a proper strategy, when you inherit the house, the ‘basis’ (cost) is automatically ‘stepped’ up to the current value. If you then turn around and sell it for the same price, $500,000, you pay no capital gains tax. Holding Title and Step Up in Basis How a property's title is held might mean different tax results. These are the three common ways in which title can be held in California, joint tenancy, tenancy in common, and community property with the right of survivorship.
In today's digital age, we have more than just physical possessions to consider when planning for the future. Digital assets are electronic records that hold monetary value or sentimental importance, such as cryptocurrencies, online accounts, photos, videos, and documents. Additionally, these are assets that are acquired throughout one’s life and are often irreplaceable. Personally, I have acquired substantial digital assets throughout my life that are of great sentimental value to me, such as digital photos of my family. I’m sure most of you are in the same position. Here are some of the reasons why digital assets matter for estate planning: Digital currencies that operate independently of central authorities, like Cryptocurrency, may have significant monetary value. They are stored in digital wallets that require keys, passwords, or codes to access. Additionally, this should be included in your estate plans and provided to the executors or trustees with the necessary information to access them; otherwise, they may be lost forever or inaccessible to your heirs. Further, these are more difficult to track than standard currencies since they are not stored in a traditional bank like most currencies. It's best to make the management of digital currencies as easy as possible for your heirs. Digital assets are also vulnerable to data breaches, hacking, or theft. These types of breaches can become increasingly elaborate with technology and time. Therefore, without proper planning, you may lose access to valuable or sensitive digital assets, such as bank accounts, investments, or personal information. To prevent this, ensure secure storage and documentation of their digital assets and provide their executors with the means to access them. Moreover, they should also review the terms of service and privacy policies of the custodians of their digital assets, such as online platforms, cloud services, or apps, to understand their rights and obligations regarding their digital assets. Additionally, paid third-party assistance can also be used for assistance with breaches. I have personally experienced invasive breaches of digital assets and it’s a headache to deal with. Your heirs would appreciate not having to deal with these obstacles in a time of grieving. The Importance of digital photos cannot be understated. In our interconnected world, most of our cherished memories are captured digitally. This includes things like family photos, videos, and personal documents. You may want to preserve them for posterity, share them with loved ones, or even delete them for privacy reasons. Moreover, these photos can be on many platforms or cloud devices, such as Facebook or Google Drive for example. You should include them in your estate plans and provide the executors or trustees with the instructions and access to them. I personally have thousands of photos and I would be devastated if they were lost or inaccessible.
Understanding Proposition 19 Proposition 19 was enacted in California at the end of 2020 and created substantial obstacles for homeowners to avoid reassessment of their property. This is significant because, under Proposition 13, property taxes are limited to 2 percent annually absent a change in ownership. This can be a massive benefit, particularly in California, where it’s common for homeowners to have purchased their property at a time when home values were much lower, and therefore, so would their property taxes. However, absent an exception, if there is a change of ownership under Proposition 13 the property would be reassessed. In a nutshell, what Proposition 19 does is severely limit these exclusions. The current exclusions under Proposition 19 include victims of disasters, disabled persons, persons over 55 years of age, parent to child, and grandparent to grandchild.
Learn how to transfer your business into a trust with our comprehensive guide. Discover the benefits of avoiding probate, protecting your assets, and ensuring business continuity. Whether you have an LLC, general partnership, sole proprietorship, or corporation, we provide step-by-step instructions and highlight potential issues to consider. Maximize your estate planning strategy and secure your business's future. Consult with our expert attorneys for personalized advice on transferring your business into a trust.
Navigating estate planning for blended families can be complex and challenging. This comprehensive guide covers essential considerations, including guardianship decisions, fair asset division, and inheritance rights. Discover effective strategies like establishing trusts, making direct gifts, and ensuring open communication to protect your loved ones and minimize conflicts. Learn about the benefits and drawbacks of different trust structures, such as revocable trusts and A/B trusts, and how to leverage life insurance and separate accounts for smoother transitions. Consult with an estate planning attorney to create a customized plan that addresses your family's unique needs and ensures peace of mind.
Starting a business in California? This guide helps you choose the ideal legal structure for your venture, whether it's a C Corporation, S Corporation, LLC, Sole Proprietorship, or Partnership. Learn about the pros and cons of each entity, focusing on liability protection, taxes, and growth potential. Discover expert tips to make an informed decision that safeguards your personal assets and aligns with your business goals. Get insights into the complexities of double taxation, eligibility criteria, and investment opportunities. Consult with legal and tax professionals to ensure the best start for your California business.