Every real estate transaction starts with signing a written offer to purchase the property. That offer, if accepted, will become the contract to purchase. Frequently the seller and buyer will negotiate the terms by making numerous offers and counter-offers until there is an agreement between the buyer and seller.
The form of contract used by Realtors varies by area. The three most frequently used contract forms are the Multi-Board Residential Real Estate Contract 5.0, the Southwest Suburban Contract, and the Chicago Board of Realtors Contract. The terms of these contracts are explained in detail in another section of this Learning Center.
The Multi-Board Residential Real Estate Contract 5.0 (the 5.0 Contract) is most widely used in DuPage, Kane, McHenry, Lake (IL) counties. The Southwest Suburban Contract is used in southern and southwest Cook County. The Chicago Board Contract is used in Chicago. All of these contracts can be used in any area.
All of these contracts have provisions similar to each other: an attorney modification provision, a home inspection provision, a mortgage contingency provision, a tax proration provision and a closing date.
It is typical that the buyer’s attorney and the seller’s attorney have 3 to 5 business days to approve, disapprove or make modifications to the contract. It is critical that a copy of the executed contract be sent to the attorney as soon as it is accepted by the seller. Modifications made are based upon the specified terms of the contract and may vary. What are the typical modifications that Borla, North & Associates usually make? We may insert provisions that: the property appraise at the purchase price; specify title companies to provide title; the buyer has the right to conduct tests for radon, asbestos or mold; and any other modifications necessary for the particular contract. These modifications are typically agreed upon between the parties within the first 10 business days of the contract.
The contract is contingent upon a home inspection by a licensed inspector within 5 business days of the seller’s acceptance of the contract. Our office or your Realtor can provide you with a list of qualified inspectors. We strongly encourage you to be present for the inspection. Upon completion, the inspector will issue a written report. A copy needs to be delivered to us with your input as to what items you wish corrected. We classify inspection issues into three categories: structural defects, safety issues and other defects.
After we receive the inspection report and discuss those issues with the buyer, we will notify the seller’s attorney. This notice must be sent with the first 5 business days of the contract acceptance date. After the letter is sent, we diary the 10th business day. By this day, an agreement of the home inspection issues must be completed otherwise the contract may be null and void.
The contract provides a contingency for the buyer to obtain a mortgage. Most often the provisions are that the buyer must obtain a mortgage of a specified amount with an interest rate not to exceed a specified rate on or before a certain date. We diary that date and if a written mortgage commitment is not obtained, we will ask for an extension of that contingency (otherwise your earnest money may be at risk). Obviously it is important that you, as the buyer, apply for a mortgage within 5 business days of the contract acceptance date so as to start the mortgage application process.
Tax Proration Provision
In Illinois real estate taxes are paid in arrears. For example, the taxes for 2012 are going to be paid in 2013. It is customary to request an increase in the amount of taxes to be credited based on the expectancy that the tax bill will go up. Typically that increase is 5%, but it can frequently be higher or lower depending on the location and whether or not the property was recently appraised.
The contract contains a date for the closing. In preparation for the closing date, we will advise you that you need to secure homeowner’s insurance (except for condominiums) for the property along with a paid receipt showing the insurance is paid for one year in advance. We will advise you 24 to 48 hours prior to the closing of the amount you will need to bring to the closing. The check you bring to the closing needs to be collectible funds – a certified or cashier’s check. If your funds are in a money market, those funds need to be transferred prior to the closing so that you can draw a certified check to have available at the closing. We will try to schedule the closing date and time suitable to all parties.
After the Closing
After the closing, the recorded deed and actual owner’s title insurance policy is sent to our office. We verify that the owner’s title insurance policy is in the same form and condition as the waived commitment we received at the closing. After reviewing the documents for accuracy, we forward all of those documents to you and remind you to keep them in a safe place.
We have tried to give you a thumbnail sketch of all of the things that are done at a real estate purchase. If you have any questions, please contact our office.