Is it time to sell your home or buy a new home? No matter the reason for putting your home on the market or entering into a contract to buy a house, the decision is a big one. As the largest investment, purchase, or sale that most people will ever make, it is important to make sure that not only are you getting a fair price, but that all of the other financial and legal aspects are handled correctly once you are under contract.
You probably have a ton of questions about how Illinois residential real estate transactions work, especially if this is your first time buying or selling. Forget about how your closings have gone in other states, Illinois is unique in how the transaction is handled. Feel free to browse around my website for straightforward information written to answer your questions and familiarize you with the process of selling or buying a home.
At Ktenas Law, our Illinois real estate lawyers are experienced in representing buyers and sellers in Cook County.
Whether you need help with a home closing in a For-Sale-By-Owner (FSBO) home sale or aggressive legal representation to challenge an eminent domain case, Ktenas Law is the firm available to help you. Contact our office to schedule a free initial consultation.
What is the Illinois Real Property Disclosure Act?
The Illinois Real Property Disclosure Act (the “Act”) grants buyers important rights when buying property in Illinois. The Act become law in Illinois in 1998 and was designed to protect purchasers of residential properties from sellers that fail to disclose important information during the sale process.
Under prior law, sellers were not required to disclose certain information about a property unless they were expressly asked by buyers about a given issue with the property. In addition to single-family homes, the Act covers residential properties up to four units, as well as condominiums and co-ops.
Where the Real Property Disclosure Act applies, Sellers are required to complete the Illinois Realtors Residential Real Property Disclosure Report. The Report lists 23 different questions to be completed by the party selling a home in Illinois. Some of the issues that must be disclosed include:
- Material Defects: includes things like faulty wiring, malfunctioning heating and/or air conditioning, and damaged fixtures
- Flooding: includes a list of all instances of known flooding regardless of the source
- Unsafe Conditions: includes structural defects like foundation damage and a leaking roof
- Environmental Issues: includes things like lead paint and asbestos. It is important to note that sellers are not required to test for radon in Illinois
- Insects and Pests: infestations, particularly termites and other insects that can potentially damage the structure, must be disclosed
- Soil Conditions: includes things that could potentially jeopardize the structure of the house, like an abandoned well
What is an Attorney Review and Inspection Letter?
The attorney review provision of the contract allows a purchaser’s attorney to submit contract modification requests to the sellers in a timely manner. The inspection provision of the contract allows the purchaser to include within the letter requests for any repairs the property may need. Even though the attorney review and inspection provisions often run on the same timeline, they are two separate contingencies in the contract.
Illinois Residential Purchase and Sale Agreement
The Illinois Residential purchase and sale agreement is a contract that binds two parties in a residential property transaction. The two parties, “seller” and “buyer,” will negotiate the terms of the agreement with help from their broker, real estate agent, or realtor. Once signed, the contract is legally binding and cannot be broken.
Provisions contained within the agreement set forth terms and conditions like pricing, financing, closing terms, inspections and surveys, property conditions, and other contingencies and constraints by which both parties must abide. It is the buyer’s responsibility to complete the necessary inspections of the dwelling before signing the purchase and sale agreement, just as it is the seller’s responsibility to provide the buyer with the standardized State disclosure form.
What is Escrow?
Escrow is the time period between signing the purchase agreement and closing on the house. You will choose an escrow or title agent, a neutral third party that will serve as an intermediary and supervise the process (possibly preparing title reports, as well as monitoring bank loan processing, removal of contingencies, and so on).
The buyer typically has a lot more to do during this time period than the seller. By the close of escrow, the buyer will need to finalize financing, remove all buyer contingencies, have the house appraised (typically required by mortgage lenders), and get title insurance—usually under set deadlines.
Of course, if you negotiated for any contingencies within the contract, such as the right to have it called off if you're unable to find a new house to buy, you too will need to get busy.
Issues often come up that require negotiating, such as who will pay for repair problems identified in an inspection report. The buyer may insist that you either pay to remedy a defect or lower the purchase price. If you cannot reach an agreement, the buyer may have the right to back out of the real estate deal.
What if the Buyer Agreed to Purchase the Property in "As Is" Condition?
The Buyer can and should still conduct an inspection of the property. If the Buyer finds the property unacceptable then the Buyer may terminate the contract within a certain timeframe. For example, a contract commonly used, known as the “Multi-Board Residential Real Estate Contract 6.1”, allows 5 business days from the date of the contract’s acceptance to terminate the contract if the Buyer does not approve of the property in As-Is condition.
The Buyer also has three other options: (a) proceed without requesting any repairs; (b) respectfully request certain repairs from the inspection report and if Seller declines then the Buyer must proceed or (c) counter-offer the Seller and demand certain repairs be made or credit is given and if the Seller does not agree then the contract is terminated.
Purchase of Real Estate
Questions people frequently ask when buying a home include:
How Much Earnest Money Should I Put Down?
The Seller will want as much earnest money as possible, while you, as the Purchaser, will want to put down as little as possible, so there is a little negotiation involved. It has been our experience that the higher the purchase price the higher the earnest money. The range for earnest money is typically somewhere between one to four percent of the purchase price.
What Costs Can I Expect to Pay at Closing?
You may have to pay the following fees:
- Legal; we would be happy to provide a quote to you;
- Lender; verify the amount with your lender. Depending on the specific loan product, these can range from $250 to several thousand dollars;
- Title Insurance/Closing fee for the loan; these costs are typically tied to the purchase price, but range from $950 to $3,000;
- Transfer taxes; some municipalities charge the Purchaser a transfer tax. By way of example, the City of Naperville charges three-tenths of a percent of the purchase price (on a $300,000 home, this would be $900); and
- Recording fees; for the deed and a single mortgage, is approximately $100.
Depending on your specific circumstances, these fees can vary greatly. This list is offered as an example and not as a comprehensive final list.
Can I be Assured the Transaction Will Close?
Absolutely not, from a practical standpoint, most real estate transactions close. However, most contracts have contingencies whereby the Purchaser may terminate the contract and receive their earnest money back. These contingencies include; the attorney review/approval provision mentioned above; any finance or home sale contingency.
What If I Cannot Get Approved For Lender Financing?
There are very specific financing contingencies that protect you from being liable on the contract if you are not able to obtain lender financing. Our firm can help ensure that you fall within these contingencies. If you cannot obtain lender financing under normal circumstances, then an attorney will follow through with all the required steps to ensure that the contract is canceled, and your earnest money deposit is released back to you.
Sale of Real Estate
When selling residential property people often wonder:
How Much Earnest Money Should I Request?
The Purchaser will want to put down as little earnest money as possible, while you, as the Seller, will want to have as much as possible put down, so there is a little negotiation involved. It has been our experience that the higher the purchase price the higher the earnest money. The range is generally between one and four percent of the purchase price.
What Costs Can I Expect to Pay at Closing?
You may have to pay the following fees:
- Legal; we would be happy to provide a quote to you;
- Survey; typically between $300 and $450;
- Title Insurance; These costs are typically tied to the purchase price, but start at $1,500;
- Transfer taxes; The State and County charge 1.5 tenths of a percent of the purchase price (on a $300,000 home, this would be $450). Also, some municipalities charge the Seller a transfer tax. By way of example, the City of Aurora charges three-tenths of a percent of the purchase price (on a $300,000 home, this would be $900); and
- Property Taxes; while not exactly a fee, you will have to provide the Purchaser with credit for property taxes. In the State of Illinois property taxes are paid a year in arrears, so in effect, you will be pre-paying your property tax bill. Depending on the assessed value of your home from an appraisal, and the time of year the closing occurs, this tax amount can be very significant. We would be happy to provide you with an estimate.
Depending on your specific circumstances, these fees can vary greatly. This list is offered as an example and not as a comprehensive final list.
Reach Out to Our Attorneys for Residential Real Estate Transactions
If you are selling or buying a home, legal representation is prudent. Real estate contracts contain instructions, contingencies, and deadlines that must be fulfilled, such as obtaining financing approval or selling a current home. If these conditions are not met, and extensions have not been requested, there could be serious negative consequences.
Avoid the stress of surprises during the purchase or sale of your home. Contact a Chicago real estate attorney at Ktenas Law for prompt and professional service.