Essential Components of an Illinois Real Estate Contract
An Illinois real estate sales contract is a legally binding agreement that outlines the terms of sale for the property. It should contain the following sections:
Parties to the Agreement. This section contains the contact information for the buyer and seller.
Property. This section outlines the property, both real estate and legal description, being sold under the contract.
Purchase Price and Delivery. This section provides the purchase price of the property and how it is to be delivered to the buyer.
Possession. This section provides the dates for possession for the buyer of the property as well as when the seller needs to vacate the premises.
Legal Description. This section is possibly one of the most important sections of a real estate contract. An improper legal description could make the deed ineffective , and therefore, the property transaction incomplete.
Title Commitment. A title commitment is the first step in a multi-step process to determine the status of the property’s ownership and to find any issues with the title that need to be addressed before the deed is transferred.
Covenants and Representations. This section provides the buyer with a guarantee that the property is free of all encumbrances and will be subject to only those encumbrances specified in the contract.
Prorations. This section sets out what taxes and assessments are to be prorated.
Legal Criteria in Illinois
In Illinois, a valid real estate sales contract must be reduced to writing. This is required by the Statute of Frauds. The Statute of Frauds is a common law doctrine requiring certain types of contracts to be in writing in order to be enforceable. Illinois law requires all contracts for the sale of real estate to be in writing. Aside from a written agreement, the listing of a house with an agent can also be a contract for the sale of real estate. In that case, the listing agreement must be in writing in order to be enforceable. A valid real estate sales contract must also be signed by the parties to the contract. In Illinois, electronic signatures are generally not acceptable on real estate contracts unless the property being sold is a one-to-four unit residential property, rented out entirely and held by a trust or other entity. In that case, the contract should say "this electronic signature is the equivalent of my handwritten signature." Otherwise, you should obtain the necessary original signatures or have your closing attorney sign for the parties.
Contingencies and Their Effects
When recognition of the Illinois real estate sales contract became widespread, so too did an understanding of its limitations to lock a contract in stone. Recognizing the potential need for flexibility in real estate transactions, the Illinois real estate contract was designed to be capable of accepting various contingencies to allow for changes in circumstances after the initial contract was offered.
One significant consideration is that a contract needs to stand on its own. Contractual contingencies may only bind the parties if they are expressly written into the agreement. Therefore, relying on customary transactions, oral statements from parties or agents or other perceived norms in the industry may not be sufficient. All important aspects should be stated in the contract itself, with contingencies clearly indicated where applicable and included as part of the material terms of the deal. Failure to do so may result in seemingly standard contingencies failing to meet their intended purpose.
A contingency is nothing more than a condition that is intended to execute or terminate the contract if it is met, or failure to do so as originally anticipated. The contract may be "contingent" on the occurrence of some future occurrence, such as obtaining financing or sale of a property. Depending on how the contingency is stated, "satisfaction" or "default" of the contract may occur under different circumstances and notice of satisfaction or default of the contract may also differ. The seller often wishes to have all contingencies met, while the buyer often does not, particularly if the buyer’s intention is to end the deal. The buyer may prefer the contract to remain in force, while the seller may prefer to have the contact terminated.
The parties often spend a significant amount of time negotiating which contingencies to include in the contract, with respect to such issues as the need for home inspections, a mortgage and/or an appraisal. The actual language chosen often varies widely. For instance, the mortgage contingency may state that the buyer will be able to obtain a mortgage in the amount of a set number of years, at a stated interest rate or at no greater than the current prime rate. In contrast, the contract may state that the buyer will be able to obtain a mortgage in a specified amount, with no indication as to whether the interest rate is adjustable or fixed. A contract may actually utilize the term "contingent" as part of a condition, as in a contract that stated that the contract would be contingent on completion of a final walk-through of a unit, rather than on the failure of the buyer to complete a walk-through. The key to a "contingency" is that there is an event, the occurrence of which will impact the contract terms. It will be "triggered" by the stated condition. It also requires that the contract have clear terms, which will ensure that the contract provides for the issue as a contingency.
While the contract intent may be clear, the practical, legal and tax implications of the contract terms may not be so obvious. That’s why it’s always best to have a real estate attorney assist with your contract.
Making Changes to the Real Estate Sales Contract
Amending a Real Estate Sales Contract can often be a necessary process that allows the buyer and seller to reach an agreed-upon solution. However, when it comes to renegotiating or modifying a real estate sales contract in Illinois, the process of coming to a mutual decision can be just as important as the decision itself. The key in achieving this is to be as specific as possible on the amended contract. Simply adding or deleting terms, or making a generic statement that no modification other than those made will be enforceable, are generally not sufficient.
To come to a mutual agreement about amending a real estate buyers agreement, you can follow the steps outlined here.
- Process of negotiation – If you’re trying to amend a real estate sales contract, we recommend doing so as early as possible. This should not be something that’s left until closing. The time when you actually ask for an amendment really depends on the situation. For example, if you’re asking for a credit for repairs, you should be asking for that immediately after the inspection results come back; if you’re asking for a different settlement date or anything like that, it all depends.
- Coming to a mutual agreement – Regardless of the situation, the overall goal should be to approach it in such a way that the other party feels as if they’re benefitting as well. Some parties sign the initial agreement without seeing things quite how they are, and so it’s important to be able to approach this as a re-negotiation. What will they get out of this? What is the motivation for them to sign the amended real estate sales contract? You may also consider incentives such as these:
- Change of dates
- Change of purchase price
- Changes regarding repair responsibility shortcomings
- Addition of contingencies
All parties must then sign and date that agreement.
Avoiding Common Errors
Missing Contingencies
The most common mistake for sellers and buyers is to miss a contingency. The price of a good attorney is worth far more than the price of an apartment or house. Contingencies are the lifeline to a sale, buyers should insist that every contingency be satisfied. Additionally, listing brokers and real estate agents should have lawyers involved to satisfy the crucial details.
Inspection Clauses
Do not allow a tenant to say that they will vacate by a certain deadline, which is a contingency, and then not be out of the property by the required date. This has happened several times in the past few months, and it costs thousands of dollars (time and legal fees) in addition to losing the buyer .
Lack of an Attorney
Purchase contracts should be drafted by an attorney, and you will be grateful you paid the attorney to draft the contract. If a contract says the condominium is sold "as is", it means it is sold "as is". Do not be surprised that you are held to a contract that you signed in your haste to buy a new apartment or home.
Wrong Dates
Review the final contract. When you look at a sales contract for a condominium or a house, you will find deadlines for everything from the mortgage commitment to the first offering of the apartment to the condominium review. You should be sure that the calendar dates for all the deadlines are correct. This can be a source of confusion for buyers if they do not perform their due diligence.
The Importance of a Real Estate Attorney
In Illinois, the use of the real estate attorney is one of the more misunderstood components of the real estate transaction. There is no question that the attorney has a crucial role in the Real Estate Sales Contract and the transaction as a whole, yet very few people understand that role or the importance of it. This post will clarify that role, and hopefully shed further light on the issues discussed above. The attorneys involved for each party (the buyer and the seller) perform a number of functions. Some of these functions are important for closing. Others are important for the protection of the rights and dollars of the client. These attorneys, and their staff, traditionally wade through the contract during the time between signing and closing. In that time, questions arise that require examination and expert analysis. Clarifications must be made; potential problems have to be mitigated; and yes, sale prices are sometimes adjusted. For many people, the purchase or sale of a home is the largest investment they will make in their lives, and it will likely be the only home purchase or sale they are involved with. This can make the process somewhat stressful, and it is the goal of the attorneys involved in an earnest effort to raise client comfort levels.
Closing the Deal
After the contract is entered into, it will usually be required that inspections, repairs, financial disclosures and the like be performed. Once these are satisfied, a closing date is finalized. Just as at the inception of a contract, multiple forms will be signed at the closing. The closing is the occasion upon which the seller conveys its ownership interest in the property and the buyer pays the price. Among the items for which a seller is responsible include: obtaining the deed, signing the deed before a notary public, signing an affidavit of title, delivering the keys, leaving the house in a broom-clean condition, meeting conditions of purchase, signing certain affidavits and other closing documents, cancelling applicable home warranties, observing a post-closing review period if the buyer occupies the premises before the seller can re-enter, staying after the closing until the buyer has possession, and otherwise cooperating with the buyer at reasonable times to complete post-closing matters . Among the items for which a buyer is responsible include: arranging for a title search, appraisals, taking possession of the property, paying closing costs, arranging for insurance, recording the deed, paying the balance owed and obtaining an occupancy permit if required by the local authority. Sellers and buyers will want to ensure that their real estate professional is practicing in real estate transactions frequently. This experience will prove to be advantageous to both parties in a real estate transaction.