California is an escrow state, not an attorney-closing state. Most residential purchases are handled by real estate agents and an escrow company from offer to recording, and no lawyer is ever involved. That works fine for a conventional transaction. It works badly the moment something is unusual — a co-ownership arrangement, seller financing, a trust or probate sale, an entity purchase, a property with permit or boundary problems, or a purchase that has to fit into an estate plan.
California also imposes one of the most extensive seller disclosure regimes in the country, and the decision of how to take title carries income tax and estate consequences that most buyers make in thirty seconds at the escrow desk. The Holmes Law advises California buyers on contracts, contingencies, disclosures, title and vesting, and the transactions where a standard form is not enough.
The Purchase Agreement and Its Contingencies
Most California residential transactions use the California Association of Realtors Residential Purchase Agreement. Signing it creates a binding contract, subject to the contingencies it contains. Three matter most:
- Investigation contingency — the buyer’s right to inspect the property and to cancel if not satisfied. This is broad, and it is the buyer’s principal protection.
- Loan contingency — protects the buyer if financing is not obtained.
- Appraisal contingency — protects the buyer if the property does not appraise at the purchase price.
Each runs for a period specified in the agreement, commonly 17 days by default, and each is negotiable. In competitive markets buyers routinely shorten or waive contingencies, which converts a protection into a risk — waiving the appraisal contingency means committing to cover a shortfall in cash.
One California feature is critical and frequently misunderstood: contingencies do not expire on their own. They remain in effect until the buyer removes them in writing. A seller who wants to move forward must serve a Notice to Buyer to Perform, giving the buyer a short additional period — commonly two days — before the seller may cancel. Buyers should not assume a missed date has forfeited anything, and sellers should not assume a lapsed deadline has automatically removed a contingency.
The Deposit and Liquidated Damages
California Civil Code section 1675 addresses what happens to the deposit if a buyer defaults. For a residential property of not more than four units that the buyer intends to occupy, a liquidated damages provision is presumed valid if the amount does not exceed 3% of the purchase price — and is presumed invalid above that. Under Civil Code section 1677, the provision must be separately signed or initialed by both parties to be effective.
Read the initials line before signing it. It is the clause that determines what a change of mind costs.
California’s Disclosure Regime
California sellers must disclose an unusual amount, and the disclosures are the buyer’s best source of information about the property. The core documents:
- Real Estate Transfer Disclosure Statement (TDS). Required under Civil Code section 1102 and following for most residential sales of one to four units. The seller states what they know about the condition of the property, systems, defects, additions, and neighborhood problems.
- Natural Hazard Disclosure Statement. Under Civil Code section 1103, disclosing whether the property lies in a special flood hazard area, a dam inundation area, a very high fire hazard severity zone, a wildland fire area, an earthquake fault zone, or a seismic hazard zone. In California this is not boilerplate — it drives insurance availability and cost.
- Mello-Roos and assessment district disclosure. Special taxes and 1915 Act bond assessments that can add substantially to the annual tax bill.
- Lead-based paint disclosure for housing built before 1978, under federal law.
- Fire hardening and defensible space documentation for properties in designated fire hazard zones, under legislation applicable to homes built before 2010.
- Water-conserving plumbing fixture compliance, smoke alarm and carbon monoxide detector compliance, and the required earthquake and environmental hazard booklets.
- Megan’s Law database notice, and disclosure of a death on the property within the prior three years under Civil Code section 1710.2.
- Supplemental property tax notice — see below, because this one surprises buyers with a bill.
Timing carries a remedy. If the Transfer Disclosure Statement is delivered after the buyer has made an offer, the buyer has a right to terminate — three days after personal delivery, or five days after delivery by mail, under Civil Code section 1102.3. Amended disclosures can restart that right. Buyers should read disclosures the day they arrive, not the day before closing.
Disclosure is not a substitute for inspection. Sellers disclose what they know; a general home inspection, and specialty inspections for roof, sewer lateral, chimney, pool, foundation, and pest, find what they do not.
Escrow and Title
Escrow is a neutral third party holding funds and documents and following the parties’ joint instructions. Escrow does not represent the buyer, does not give legal advice, and will not tell a buyer that the deal is a bad one.
Early in escrow the buyer receives a preliminary title report, which lists what is recorded against the property — liens, deeds of trust, easements, CC&Rs, mechanic’s liens, judgments, and assessment districts. It is an offer to insure on stated terms, not a representation about title, and the exceptions are the important part. Easements that cross the buildable area, CC&Rs restricting use, and unreleased liens should all be resolved before closing rather than after.
The buyer typically receives an owner’s policy of title insurance. A standard policy covers recorded defects; an extended policy covers additional off-record risks such as boundary discrepancies, encroachments, and unrecorded easements that a survey would reveal. For anything but a tract home on a rectangular lot, the extended coverage is usually worth the difference.
How to Take Title — the Thirty-Second Decision That Lasts
Vesting is generally decided at the escrow desk, and it has consequences no escrow officer will explain.
- Sole ownership. One owner; passes under the will or trust.
- Tenancy in common. Separate, transferable fractional interests, which need not be equal. Each owner’s share passes under their own estate plan. The default for unmarried co-buyers, and the reason a written co-ownership agreement matters.
- Joint tenancy. Equal shares with right of survivorship; passes automatically to the survivor outside probate. For married couples in California this is usually the wrong choice, because it forfeits half of the basis step-up.
- Community property. For married couples. Delivers the double step-up under Internal Revenue Code section 1014(b)(6) — both halves receive a new basis at the first death — but does not avoid probate on its own.
- Community property with right of survivorship. Authorized by Civil Code section 682.1. Delivers probate avoidance and the double step-up. For most married California buyers this is the default worth asking for.
- Title in the name of a trust. Where the buyer has a living trust, taking title directly as trustee avoids having to record a second deed later, and is not a change in ownership for property tax reassessment purposes.
The step-up point deserves emphasis because California property appreciates. On a home bought for $700,000 and worth $1,800,000 decades later, the difference between community property with right of survivorship and plain joint tenancy is roughly half of $1,100,000 in taxable gain — at combined federal and California rates. It costs nothing to choose correctly at the outset.
Property Taxes: Proposition 13 and the Supplemental Bill
Under Proposition 13, a purchase is a change in ownership that resets the property’s base year value to the purchase price. Annual increases in assessed value are then limited, which is why a neighbor who bought in 1994 pays a fraction of what a new buyer pays for an identical house.
Two consequences catch buyers out. First, the supplemental tax bill: the assessor issues a separate bill for the difference between the seller’s old assessment and the new one, prorated from the closing date. It arrives months after closing, it is not included in the impound account, and it is frequently large. Budget for it.
Second, a buyer who is 55 or older, severely disabled, or a victim of a wildfire or natural disaster may be able to transfer their existing base year value to a replacement home anywhere in California under Proposition 19, up to three times. For a longtime owner moving from a low-assessed home, this can save thousands of dollars every year. It requires a timely filed claim, and buyers in this category should raise it before closing.
Documentary transfer tax is also owed at recording, at county and in many cases city rates — and several California cities impose substantial additional transfer taxes on higher-value sales, which should be confirmed for the specific jurisdiction.
Condominiums and HOA Properties
Common interest developments are governed by the Davis-Stirling Common Interest Development Act, Civil Code section 4000 and following. A seller must provide a specified package of association documents, and Civil Code section 4525 lists them: the governing documents, the current budget and reserve study, the most recent financial statements, a statement of assessments and any delinquencies, notices of violation, information about pending litigation and anticipated special assessments, and the insurance summary.
Read the reserve study and the litigation disclosure. An association with badly underfunded reserves or active construction defect litigation is a future special assessment, and in some cases a lending problem — buyers have discovered at the last minute that no lender will finance a unit in a project with certain litigation or owner-occupancy ratios. Check the rental restrictions too if the property is an investment.
When a California Buyer Should Involve an Attorney
Most purchases do not need one. These do:
- Unmarried co-buyers. Friends, partners, or siblings buying together need a written co-ownership agreement covering contributions, expenses, buyout rights, and what happens on death, disability, or a dispute. Without one, the remedy for disagreement is a partition action.
- Buying with or for a trust or entity, including title held by an LLC or a partnership.
- Probate and trust sales. A sale by an estate may require notice under the Independent Administration of Estates Act, or court confirmation with overbidding at the hearing — a process with rules a standard purchase agreement does not contemplate.
- Seller financing, land contracts, or lease-option arrangements.
- 1031 exchanges and investment property acquisitions.
- Properties with problems — unpermitted additions, boundary or easement disputes, encroachments, septic or well issues, or access questions.
- New construction. Builder contracts are drafted for the builder, and California’s Right to Repair Act, Civil Code section 895 and following, sets construction standards and a prelitigation procedure that buyers should understand before signing.
- Any purchase that should coordinate with an estate plan — which, given the vesting consequences above, is most of them.
Note also that California now requires a written buyer representation agreement, and that changes arising from the 2024 national settlement altered how buyer-agent compensation is negotiated and disclosed. Buyers should understand what they are agreeing to pay and to whom before signing.
Frequently Asked Questions
Do I need a lawyer to buy a house in California?
Not for a conventional purchase — California uses escrow rather than attorney closings. Counsel is worthwhile for co-ownership, trust and probate sales, seller financing, entity purchases, new construction, or a property with title or permit problems.
Can I back out after my offer is accepted?
Generally yes while a contingency remains in place, since California contingencies must be removed in writing. After removal, cancellation may forfeit the deposit under the liquidated damages clause, typically capped at 3% of the purchase price.
My spouse and I are buying together. How should we take title?
For most married California buyers, community property with right of survivorship under Civil Code section 682.1, or title in the name of a living trust. Both preserve the double step-up in basis; plain joint tenancy does not.
What is the extra tax bill I received after closing?
A supplemental assessment. When the property is reassessed at your purchase price, the county bills the difference from the closing date. It is separate from the regular bill and usually not covered by an impound account.
Can I keep my low property tax assessment if I move?
If you are 55 or older, severely disabled, or a wildfire or disaster victim, Proposition 19 allows transferring your base year value to a replacement home anywhere in California, up to three times, with a timely claim.
Speak With a California Real Estate Attorney
The Holmes Law advises California buyers on purchase agreements and contingencies, disclosure review, title and preliminary reports, vesting and its tax consequences, co-ownership agreements, trust and probate purchases, and transactions that need more than a standard form.
To discuss a purchase, contact the office. You may also want to review our pages on California real estate law, CA residential sales, CA commercial purchase, and California estate planning.