The Basics of Contracts to Purchase Real Property in Illinois

Contracts to Purchase Real Estate in Illinois – An Overview

The first thing to understand about real estate contracts is that in Illinois, basically every contract has to be written in order to be enforceable. You can’t just shake someone’s hand and call it a day. There are some exceptions for things like real estate leases of one year or less, but the vast majority of contracts for the sale of real estate in Illinois qualify as Statute of Frauds contracts and those always need to be in writing. The essence of the deal is the important thing so it has to be clear if there’s going to be a contract in writing . Contingencies are allowed in the contract and they must be contingent. If one party to the contract is under obligation to sell their home and they can’t find a buyer for example but the home sale they are waiting on is not going to close, this type of situation is known as a contingency. Once it is in writing though, you are essentially stuck with its contents whether you have read every word or not. That is why we strongly suggest reading it before signing anything.

Key Components of a Contract to Purchase Real Estate in Illinois

An agreement to purchase real estate in Illinois will normally have the following features:
Buyer’s Name and Seller’s Name. The parties to a contract for sale of real estate need to be identified. A corporation, trust, LLC and the like may enter into a contract if a resolution approving the transaction is passed or, in the case of a trust or LLC, if the contract is signed by the grantor, trustee or completely authorized person.
Legal Description. The legal description is the wording used to identify the real estate. It should be a full description found in the current chain of title and does not change when a property is subdivided or the boundaries changed.
Purchase Price. The price to be paid should be set forth in the agreement.
Payment of Purchase Price. The contract will frequently provide that the buyer should deposit earnest money. A contract signed by a buyer should be delivered to the seller with a deposit. The seller can then accept if they like the deposit and terms and sign the contract and return it. In the event a contract is signed by the seller without the buyer’s signature, the same rules apply for the buyer’s signature to ratify the contract.
Contingencies. The current real estate contract promulgated by the Illinois Association of Realtors has many alternative contingency provisions. It is important that any contingencies, preconditions to closing be set forth clearly and concisely and have a date upon which they must be satisfied.
Property remedy upon default. The remedies upon default are set forth in the contract although state law will also provide for such remedies. The most common remedy is specifically enforceable to acquire specific performance in the event of a default. Other remedies are provided or given by statute.
Representations. The most common representations are that the seller owns the real estate, has the right to convey it, the zoning is in place, no mortgages are in default.

Illinois Real Estate Purchase Contract Compliance Issues

At least one formal document now exists for most assets and forms of business. Unlike them, Real Estate has dozens of standard forms and anyone imagining that a Real Estate Purchase Contract ("RPC") form is standardized has another thing coming. But certain legal requirements apply to all contracts for the purchase of Real Estate in Illinois.
To start with, a contract for the sale of Real Estate must be in writing, as mandated by the Statute of Frauds. See 815 ILCS 205/2.65.
If the buyer or seller of a home used a realtor, the realtor must provide the buyer with the Residential Real Property Disclosure Report required under the Residential Real Property Disclosure Act. 765 ILCS 77/1. This is a detailed seven-page, 16-question form for which there are a few exceptions. For example, the seller need not provide a disclosure if he or she was never physically present on the property.
Others selling Real Estate are required by a series of new consumer protection laws to provide certain disclosures. See 765 ILCS 77/45. Certain disclosures are required by 765 ILCS 77/20, another 765 ILCS 77/5(7), and 815 ILCS 505/2SS. Select professional associations may require additional disclosures.
Two or more persons may hold title to the same Real Property at the same time. They will be either as tenants by the entirety, joint tenants or tenants in common.
In Illinois, if two or more persons own Real Property, they own it as tenants by the entirety, joint tenants or tenants in common. Tenants by the entirety can’t sever their spousal interest without the other spouse’s consent. As a result, one spouse can’t sell or transfer his or her interest without both spouses’ being involved in the sale or transfer. Tenancy by the entirety is available only to married spouses.
Joint tenants share equal interests in Real Property. Each joint tenant has the right to sell or transfer his or her interest independently of the other joint tenant(s). A joint tenant’s heirs step into his or her shoes and upon the joint tenant’s death have an interest in the Real Property equal to what their deceased relative left. For this reason, joint tenants are not recommended for Real Property held for the benefit of one or more children or grandchildren of the majority share owners.
Tenants in common hold interests equally or unevenly. Each tenant may sell or transfer his or her interest without the other(s) being involved. When a tenant dies, his or her heirs take his or her interest.

Illinois Real Estate Purchase Contracts – Common Contingencies

Illinois contracts to purchase real property routinely contain several contingencies. Generally speaking, contingencies are conditions that must be satisfied as a necessary element of the contract. If a contingency is not satisfied, the parties are not obligated to proceed with the sale or mortgage commitment for the period of time set in the contract. Then the buyer can either terminate the contract, ask for more time or waive the contingency in writing. Some of the most common contingencies are discussed below:
Financing Contingency: The financing contingency is one of the most common contingencies. Depending on the economy, banks may offer pre-approval for the loan and some buyers must be approved for loans before contracting to purchase. However, it is still important to have a financing contingency in the contract. An FHA or VA loan often times will not be obtained without the financing contingency in place. If obtaining the loan is contingent on selling another property, this should be added as an additional contingency in the purchase contract. Home Inspection Contingency: A home inspection contingency is often included in residential purchase agreements. It allows the buyer to conduct an inspection of the property after which it may refuse to go forward with the purchase if the results of the home inspection are unsatisfactory. The buyer must comply with all the terms of the inspection contingency, which may include a deadline to conduct inspections and present the results to the seller. Some buyers will waive the right to conduct an inspection to avoid inconveniencing the seller. However, it is advantageous to conduct a home inspection to determine the condition of the property so the buyer can plan for any immediate repairs to be considered for a renegotiation. Title Contingency: A title contingency in the contract allows the buyer to investigate the title to the property and cancel the contract if the title is defective in many ways. There are many types of defects and the contract should list all defects to be reviewed by the buyer. Some may be minor defects while others can prevent closing if they are not repaired prior to closing. Home Insurance Contingency: A home insurance contingency allows the buyer to obtain insurance for the property. If the buyer is unable to obtain insurance, the buyer may be able to back out of the purchase contract. Disclosure: Illinois requires disclosure to the buyer upon entering into a contract to purchase. There are rules that are set forth in the Residential Real Property Disclosure Act and the Residential Real Property Disclosure Report. The seller will file the required disclosure with the county clerk’s office and furnish that report to the buyer upon entering into the contract.

Drafting A Real Estate Contract to Purchase Step-By-Step

Steps to Drafting a Contract to Purchase Real Estate in Illinois
All contracts have certain terms that are common. We generally know when something is required in a contract, but not all of the time. In Illinois, the provisions that must be included in a contract can be found in Chapter 740 of the Illinois Compiled Statutes. It’s important to note here that a contract only needs to include these key elements: It does not have to be a formal document, or even written. Contracts can be made orally, but I do not recommend this. This is especially true where the property is real estate, which is by far the largest single investment any of us will ever make. Fortunately, contracts to purchase property are not overly difficult to compose, and are as easy to understand as their real estate cousins, contracts to sell real estate. Most agents deal in the multiple listing service, or M.L.S. When a buyer wishes to look at properties, and think about making an offer on them, you can find a home using either an agent or a lawyer. I typically handle the real estate purchases made by those represented by my law firm where a real estate transaction occurs. Most of the time, the agents and the buyers are the ones who bring this to my attention. If you are an agent, I recommend you contact your client’s lawyers for a contract. It is easier for a lawyer to modify and revise a form contract than an agent, although a competent agent can do so without difficulty. Among other things, a lawyer will consider the following when drafting a contract: they are creating a custom written document to accomplish a specific purpose, given certain facts. My contract will be personalized to state the names of the parties included (the seller and the buyer) and the conditions of the sale. The contract should include only the following things: Every so often, a contract will include an item in it that is not relevant, i.e., something that is not pertinent to the actual sale. I try to avoid this anytime I am drafting a contract, but there are times when you simply need a boilerplate contract, and that is when the boilerplate language — mostly that which is included for the purposes of complying with certain Illinois statutes — will slip in without the buyer or the seller noticing. When drafting the contract, the main concern I focus on is ensuring my clients will not be taken advantage of. I have had clients sign contracts to purchase a home with "as is" clauses in them without understanding the implications. Once an "as is" clause is added to a contract, the seller is no longer liable for anything in the property that the buyer cannot see. This is why I tend to stay away from "as is" contracts where I am representing the buyer. If the buyer is represented by an agent, the agent typically has the contract to purchase real estate and submits it to the seller. The seller’s agent will send a counter-offer back to the buyer. When the buyer and seller agree to the contract, they should both sign it in the presence of witnesses. The contract will then be legally binding once it is signed.

Negotiating A Contracts to Purchase Real Estate in Illinois

When negotiating the terms and conditions of any real estate purchase contract, in addition to the broad range of possible terms and conditions that may be negotiated, the parties should also consider when and how those terms and conditions will be the subject of a written contract. First, both parties must agree to the property that is being sold or purchased. Once this is accomplished, both parties will review the terms and conditions of their obligations.
Grounding the negotiations, and the agreement, in a simple document which identifies the parties, the property, the deposit to be placed in escrow, the type of financing Mil to be utilized (if any, see our post on this subject), the closing date and time, the location for closing and the type of deed that will be used to transfer the property are important to the process of sale. These provisions clearly define the relationship between the purchaser and the seller with respect to the property.
Other items may be negotiated , including any contingencies to the agreement. Items frequently negotiated in an Illinois transaction include: Who is responsible for paying the real estate taxes? Will the home inspection be satisfactory to the purchaser? What damages are available if one party breaches the agreement? What happens if the property is destroyed while the parties are waiting to close? Where will a survey be prepared if one party requires that it be done and will the cost be shared between the parties or paid by the party requesting it?
Although there are many items that can be the subject of negotiations, the parties should not be in conflict with regard to the fundamentals of closing the transaction. In that regard, the parties are often best served by initially utilizing the standard forms provided by the Illinois Association of Realtors (IAR) rather than a custom draft. While custom drafts are frequently utilized, they tend to be costly in terms of time expended and reliance on real estate counsel will be necessary and expensive.

Finalizing & Reviewing Your Real Estate Purchase Contract in Illinois

It is quite common for contracts to purchase real estate in Illinois to be signed subject to a final review process. Sometimes that final review process may have been explained to us in advance, on occasion, after the fact.
A contract for the sale of real estate is drafted by the real estate attorney for the seller setting out all of the terms and conditions, such as the date of closing and the amount of the sale price. Once the seller has signed the contract, these terms may not be changed unless several steps are followed. When the buyer’s attorney first receives a seller’s proposed contract form, the attorney will then prepare a contract for the buyer which sets out the terms that are agreeable to the buyer. That contract, or a seller’s preliminary agreement may be called a "counter-offer" or a "first draft of a contract." Rough drafts may have many changes made by either party.
Once the parties reach an agreement on the basic terms, a final review then occurs when the parties have completed their negotiations. The seller’s attorney must obtain a signed copy, or "execution copy" from the buyer’s attorney. Sellers who are advertising their homes often use this term to mean that they have a "signed" or "executed" agreement with the buyer and are now ready to sign.
On the other hand, it is also common for buyers and sellers to be signing a contract of purchase while being aware that they have a strong selling point and are willing to deal given the prevailing market conditions. When signing a contract, the buyer may want a response on an offer in a day or two.
In the latter situation, the buyer may want a chance to review of the final contract drafted by the seller’s attorney before signing it. This draft of the contract is often a combination of both buyer’s contract with buyer’s changes and the seller’s contract with seller’s changes. If both parties and their attorneys agree to a final review of the seller’s contract, then a time period for final review will be agreed upon by the parties. The final review period is often set at seven business days. Sometimes it takes longer depending on the situation.
This final review and acceptance of the contract is sometimes referred to as the "cleaning up the contract" or "cleaning up buyer’s contract." Some contracts have detailed language on how to clean up the contract with a deadline following the acceptance of the offer to purchase.
One thing to remember anytime you are dealing with real estate closings in Illinois is that these contracts often must be signed by the seller and buyer in front of someone who is authorized to notarize their signatures. Not all attorneys are authorized to notarize documents. If an attorney knows that they will be taking a contract to purchase real estate closing, they should have their licensed notary present.

Resolving Legal Issues Related to Your Purchase Contract

From time to time contracts to purchase real estate result in litigation. A buyer or seller may refuse to perform and so a party can sue for specific performance, which is a court order to make the other side do what they promised. Alternatively, if the other side has performed, you can sue for damages. Again, this is where the concept of "expectancy" damages comes into play. For example, assume each party has performed their obligations. Singing wonder Bob Dylan breaches the contract without justification. He’s finally selling his mansion in Malibu to get that cash to pay that nasty judgment he lost in favor of his ex. The sale price was $2 million and as a result of Dylan’s breach, Johnny Cash now sells it to a third party for $1.5 million. Johnny is entitled to get the difference ($500,000) between what he could have gotten from Dylan if the contract had been performed and what he actually ended up getting in this case. Notably though a breach does not always entitle a party to recover damages. For instance, if the buyer wanted the property for personal reasons and terms like delivery date, interest rate, financing to be done through a bank or lender etc. were important to him he won’t be able to get that money even if his performance cost him some money. In other words, if Bob Dylan’s mansion was one of a very few oceanfront properties available in California and the buyer really wanted it and he can prove as much by showing he paid more for it than similar properties, he would still be out of luck. He can only get damage otherwise.

Bottom Line On Your Contract to Purchase Real Estate In Illinois

A contract to purchase real estate is an important part of the home buying and selling process. However, most people do not make it a priority to understand what is in their contract. While the contract is lengthy and sometimes confusing, it is worth the time to ensure that you understand it now, rather than later when an issue arises. You surely do not want to have a problem down the road related to your new home.
For this reason , I have compiled the top 5 key points to consider:

• Both the buyer and seller have contractual obligations that need to be understood.
• Major components of the transaction are included within the contract, including the following:
• Buyers should particularly pay attention when multiple offers are on the table, as sellers often have several options to work with.
• Buyers need to be aware of which party is responsible for the closing cost.
• Although a real estate contract is a significant document, it is always subject to negotiation.