Understanding the Contract to Buy and Sell Real Estate in Illinois

What is a Contract to Buy and Sell Real Estate?

The Illinois Real Estate Purchase Agreement is a legal contract that describes the sale of residential and commercial properties. It contains the buyer and seller’s terms and conditions and requirements for the transfer of property from one party to another. Unless you are buying a home from a home builder, the chances are high that the real estate purchase agreement will be your main source of agreement between the buyer and seller and that the contract will be the only agreement you will ever sign with the other party in relation to the sale/purchase of the property.
There are several reasons why the real estate purchase agreement is important both for the seller and the buyer: The offer in the real estate purchase contract must be accepted by the other side in order to finalize the deal. The procedural steps involved in accepting the contract include making an offer in writing, waiting for the party to review the offer, and if accepted, notifying the other party that the contract is binding . The property description section is also vitally important. The description should be very specific. The description used should either match/send you to the copy of the property listed by the multiple listing service or by a separate survey if no such listing exists. Make sure the legal description matches the title and plat records on the title policy. After receiving the earnest money deposit, the seller must provide the buyer a blank contract notice. The real estate purchase contract states that under the contract, the sale can be voided by the buyer or seller by providing the other with a written notice stating the noncompliance. Also, at the time of signing the contract, the buyer must give the seller the earnest money deposit. The earnest money deposit can either be returned to the buyer if there is a noncompliance under the contract, or it will be held by the escrow agent to be distributed at the closing according to the requirements of the real estate purchase agreement.

Key Terms to Understand In an Illinois Purchase Agreement

Understanding the terms used in an Illinois real estate purchase agreement (REPA) is vital. The agreement must contain the names of the parties in interest, a description of the property, the purchase price, and contingencies to the sale, among other things. In the REIAs Family of Websites, the Illinois REPA is available for free download.
The parties to the contract are the buyer or buyers (who are known as "vendees" in real estate contracts) and the seller or sellers (who are known as "vendors"). Legally, the buyer can be an individual or a corporation and the seller can be a corporation, LLC, partnership, or an individual, inclusive of a bank or government agency. Buyers are expected to do a reasonable inspection of the property, while any inspections the seller has done must be disclosed. Disclosure forms to buyers must also be filled out by the seller.
A legal description must be inserted into a contract. Plain English descriptions of the property and the address are not okay. The description needs to be in a perfect chain of title and can be taken from the current deed to the property.
No property is worth the same amount at all times. Additionally, the condition of the real estate, its marketability, and so forth change over time. That is why the REPA will only be intended and effective when signed on a specific date. The date of the signing closes the contract for the sale of the property. Otherwise, a contract could be binding indefinitely.
Because there are many things that can go wrong in a real estate deal, contingencies are important to a REPA. Contingencies protect the buyers and force the sellers to follow through on certain actions. The most common contingencies include the buyer getting financing for the purchase, the buyer completing a professional inspection of the property and a successful appraisal of the property.

The Legal Requirements Under Illinois Law

In Illinois, a real estate purchase agreement must adhere to certain legal requirements. To ensure enforceability, all agreements must be in writing and signed by the parties who will be responsible for carrying out the terms of the contract. Oral contracts are not enforceable in Illinois, so all agreements should be in written form. If the agreement is not complete or if there are any terms that cannot be agreed upon, the agreement should specify that binding arbitration will be used to settle the contract’s terms.
Illinois requires certain disclosure statements to be included in real estate purchase agreements. All sellers are required to disclose any defects with the home, such as lead paint when the home was built before 1978, mold, or asbestos. The Illinois Residential Real Property Disclosure Act requires that a seller provide an accurate and completed disclosure form to the buyer for every defect on the property, with the exception of a structure that is not used for residential purposes. Failure to complete and provide the required disclosure form may allow the buyer to revoke the agreement or file legal action against the seller for damages. The form must describe all known defects on the property and make no assurances that the property is defect-free.
While the disclosure form is not a binding part of the real estate purchase agreement, it is a legally required document that protects the buyer from purchasing a property with undisclosed defects. If a property has not been disclosed on the form and the seller knew about the defect, legal action may be taken against the seller to provide financial compensation for the home with the defect.

Common Contingencies Found in Illinois Purchase Agreements

Contracts for the purchase and sale of real estate usually contain a number of contingencies, or conditions upon which the closing of the transaction is dependent. The most common type of contingency in a residential real estate transaction is an inspection contingency, where the buyer is given the right to hire a professional to inspect the home within a given period of time, such as 7 days from the date of the contract. If the inspection results in any defects, the buyer can choose to terminate the contract and receive a refund of the earnest money. In lieu of termination, the parties can negotiate for a credit to the buyer or even a reduction in the purchase price to account for the cost to address the problem at issue.
Another type of contingency is a financing contingency, where the buyer has a set period of time in which to apply for a mortgage and be approved for financing. This type of contingency also protects a buyer who cannot obtain a loan, and gives such buyer a right to terminate the agreement after a good faith effort is made to secure financing, and to get a refund of the earnest deposit.
There is also the much dreaded appraisal contingency. In this instance, the buyer is obligated to apply for a mortgage, and proceed with the transaction assuming the loan is approved, but if the appraisal comes in at a value less than the purchase price, the buyer must either make up the difference between the loan amount and the purchase price, or have the ability to terminate the agreement.
Contingencies give the parties to a real estate transaction some measure of control if certain rights or resources are not given or provided. A well drafted Illinois real estate purchase agreement will also have a deadline date for the buyer to terminate the transaction, and will dictate the procedure to do so. Depending on the type of contingency at issue, a simple suggestion by the buyer, or the elimination of the contingency altogether, may not be sufficient to terminate the contract.

How to Draft and Execute a Purchase Agreement

The process of drafting and executing a real estate purchase agreement in Illinois begins with a written agreement between the buyer and the seller of the property. While a handshake agreement may be the norm in many contracts for the sale of personal property, in Illinois, with respect to the purchase of real estate, a written agreement is required by statute in order for it to be enforceable. While attorneys usually draft more complex real estate purchase agreements , typically an agreement prepared by a real estate agent will have the same legal effect as a more comprehensive agreement prepared by an attorney.
Real estate agents usually employ standard form agreements (some of which have been drafted by the Chicago Association of Realtors and are widely used throughout the region) on which the parties can insert the details of the transaction. The parties must also execute an affidavit at the time of closing stating that there are no additional terms to be included in the real estate purchase agreement other than that contained on the form prepared by the real estate agent.
The executed agreement should be signed by the buyer and seller and should include the following terms:
The buyer will typically arrange for the purchase of title insurance from a title company that will cover any defects in the title that are discovered by the title company in the course of issuing a title policy.
Closing is the time when the real estate sale or transfer will be finalized. At closing, the buyer will remit payment of the purchase price (less any amounts to be deducted from the purchase price for repairs, etc.) and take possession of the property subject to any encumbrances.

Avoiding Common Mistakes

Enforcement of Illinois real estate contracts can be a thorny issue and fraught with many a pitfall for the inexperienced. The realm of real estate is replete with issues, but addresses them with specific Illinois Statutes that could save you a great deal of time, money, energy, and headaches if carefully followed.
Don’t fall into one of the common traps that many people fall victim to in Illinois. Knowing the most common pitfalls to avoid could save you a fortune in legal fees, punitive damages and emotional distress.
The first pitfall people typically encounter involves entering into a verbal agreement of sale for a property without a formal written real estate purchase agreement. In order to avoid the Statute of Frauds the agreement must be performed within one year. If you are uncertain about your ability to follow through with the agreement or the time frame it will take to get a deed into your name definitely use a purchase agreement. The Statute of Frauds under the Illinois Compiled Statutes Title 765. Conveyances Article 1. General Provisions Section 2. Conveyance of Real Property requires a contract to be in writing and signed by both parties. When offers are made verbally it can be easy for one party to forget the terms of the deal later, leading to difficulties later in the deal.
In order to make a binding and legally enforceable purchase agreement in Illinois, there must be an "offer" and "acceptance". The offer has to contain the essentials of the transaction: price, payment terms, closing date, and description of the property. The "acceptance" must be in writing also. It is a good idea to have this signed by the seller before any earnest money is handed over to prevent one party being left high and dry for an unintentional oversight. A lot of problems arise when there are both "offers" and counter "offers" between the parties that drag on for weeks. The original offer and any subsequent counter offers should contain a provision stating that if the offer is not accepted in writing, they cannot be accepted verbally after a certain date. That way both parties are clear about what to expect.
The next issue that can create a quagmire of problems involves the down payment amount. There is no prescribed requirement under Illinois law for a minimum amount that has to be put down as an earnest deposit. However, the amount of the earnest deposit can sometimes affect the seller’s willingness to complete the sale or withdraw from the same.
Many people allow themselves to be intimidated by a real estate lawyer who extolls the virtues of using specialized real estate closing lawyers instead of doing it on your own. While there are many advantages to having a lawyer do the work for you, there is no law that says you have to have one. It would likely be in your best interest to hire a lawyer to draw up the final closing paperwork, but you can also do this part yourself as well. Just remember no matter how much the realtor tells you they will organize everything, it is up to you to dot the i’s and cross the t’s.
This is also the case if you are selling your home. If you do not have an attorney look over the paperwork before signing, you could be facing future obstacles that could have been easily avoided.

Know When You Need an Attorney

When it comes to the process of concluding a real estate purchase agreement through an Illinois attorney, it is important to understand that there are times when you can and should be handled by a lawyer rather than trying to go it alone.
One area in which it is particularly important to have guidance and the protection of a lawyer is when you have an unusual property. In some cases, the property may have many tenants in a building, and all of those tenants need to be notified of the sale, which can be an exhausting process if you are not familiar with the law. When any property contains tenants, it’s important to have the guidance of a lawyer to ensure that these tenants’ rights are protected throughout the process of concluding the sale of the property.
You also need to have legal protection if you are involved in a complicated residential real estate transaction, or something like a short sale . These sales are under specific regulation and they can only be conducted by licensed professionals who are really familiar with the field of real estate law. You need to make sure that you have professionals on your side to help review complex documents.
If there is a related business to the property, it is also helpful to use a lawyer to guide you through the purchase agreement process. Similarly, an unusual purchase price is often a sign that you will need the advice of a lawyer to proceed with the transaction.
In other situations, it might be a simple matter of being unfamiliar with the real estate process. Any time you are dealing with any sort of legal document, or signing something that you do not fully understand, it is worth it to have a qualified expert on hand.