Here is a complete list of questions real estate agents commonly ask their broker about the “Terms of Purchase” and “Allocation of Costs” sections of the California Residential Purchase Agreement (RPA), along with detailed explanations for each.

These sections deal with the purchase price structure and who pays for what in the transaction—both areas where agents need clarity and broker guidance.

💵 TERMS OF PURCHASE – Common Questions

  1. What is included in the “Terms of Purchase” section of the RPA?

Explanation:
This section breaks down how the purchase price will be paid:

  • Initial deposit (EMD)
  • Increased deposit (optional)
  • Loan amount
  • Seller financing (if any)
  • Balance of purchase price (typically due at close)
  1. How much should the earnest money deposit (EMD) be?

Explanation:
There’s no legal requirement, but 1%–3% of the purchase price is common. Brokers may guide based on local norms and market competitiveness.

  1. What is an “Increased Deposit,” and when is it used?

Explanation:
An increased deposit is an additional EMD made later in escrow. It often coincides with contingency removal and strengthens the buyer’s commitment.

  1. Does the buyer need to provide proof of funds with the offer?

Explanation:
Yes, especially for cash purchases or large down payments. Proof of funds strengthens the offer and satisfies Section 3H of the RPA.

  1. Can the buyer use a gift for the down payment or closing costs?

Explanation:
Yes, but the buyer must disclose it in the offer and provide a gift letter later. Some loan types may have additional requirements.

  1. Can the buyer change the loan amount or down payment later?

Explanation:
Only with written agreement. Significant changes may affect seller decisions and must be approved by all parties.

  1. What happens if the buyer doesn’t get the loan they applied for?

Explanation:
If the loan contingency hasn’t been removed, the buyer can cancel. If contingencies are removed, they may forfeit the deposit.

  1. Can the seller carry financing (seller financing)?

Explanation:
Yes, but it must be clearly outlined in the RPA with specific terms, and usually involves a note and deed of trust.

🧾 ALLOCATION OF COSTS – Common Questions

  1. What is the “Allocation of Costs” section in the RPA?

Explanation:
It outlines who pays for various transaction-related fees—buyer, seller, or shared. This includes escrow fees, title insurance, HOA fees, inspections, government reports, and transfer taxes.

  1. Who typically pays for escrow and title fees?

Explanation:

  • Northern California: Often split 50/50
  • Southern California: Typically seller pays title, buyer pays escrow
    This can be negotiated. Brokers guide based on local custom.
  1. Can the buyer ask the seller to pay for inspections?

Explanation:
Yes, although it’s more common for buyers to pay for home, termite, and roof inspections. Sellers sometimes cover these in competitive markets or under VA loan rules.

  1. Who pays for the Natural Hazard Disclosure (NHD) report?

Explanation:
This is negotiable, but commonly paid by the seller. It’s listed in the Allocation of Costs section and must be agreed upon in the contract.

  1. Are transfer taxes negotiable?

Explanation:
Yes. City and county transfer taxes can be allocated to either party, depending on local custom and negotiations.

  1. Who pays for the HOA documents and transfer fees?

Explanation:
Typically:

  • Seller pays for HOA docs (required by law)
  • Buyer pays HOA transfer fees
    But these are negotiable in the contract.
  1. Do we need to specify which inspections will be performed?

Explanation:
Not in the Allocation section, but the buyer’s intent to perform inspections should be disclosed in the Investigation of Property section. The Allocation section only deals with cost responsibility.

  1. Can the seller refuse to pay for certain closing costs?

Explanation:
Yes. The seller is only obligated to pay for the items agreed upon in the Allocation of Costs section. Anything outside of that requires a counteroffer or addendum.

  1. Should we always follow local custom on cost allocation?

Explanation:
Not necessarily. Custom is a guideline, not a rule. The allocation is negotiable, and the broker’s advice will depend on market conditions and negotiation strategy.

  1. Can I use the RPA to negotiate seller credits for closing costs?

Explanation:
Yes. Buyer agents often write in seller credits in the “Other Terms” section to cover buyer’s loan costs, repairs, etc. Must be done carefully, especially when a loan is involved, as lenders may limit allowable credits.

  1. If the seller refuses to pay a cost after the agreement is signed, what happens?

Explanation:
It becomes a contract breach. Brokers may recommend resolving via negotiation, amendment, or possibly invoking dispute resolution clauses in the RPA.

  1. Can the allocation of costs impact the buyer’s loan approval?

Explanation:
Yes. Excessive seller credits can violate lender limits, affecting the loan. Brokers often recommend coordinating with the loan officer before including large credits.

🧾 Summary Table: Typical Allocation of Costs (Customary – Not Legal Requirements)

Cost Item Typically Paid By Notes
Escrow Fee Split or buyer/seller Varies by region
Owner’s Title Insurance Seller Often negotiated
Lender’s Title Insurance Buyer Required by lender
NHD Report Seller Required by law
HOA Docs Seller Required to provide
HOA Transfer Fees Buyer Sometimes negotiable
City/County Transfer Taxes Seller Varies by city
Termite Inspection & Repairs Buyer or shared May depend on loan type
Home Inspection Buyer Optional but strongly recommended