A Real Estate Contract
In Illinois a written contract is necessary to have a valid and enforceable agreement to buy or sell real estate. The form of contract used by Realtors and attorneys varies by area. The three most frequently used contracts are the Multi-Board Residential Real Estate Contract 5.0, the South West Suburban Contract and the Chicago Board of Realtors Contract. The terms of these contracts are explained elsewhere in detail on this website.
The Multi-Board Residential Real Estate Contract 5.0 is most widely used in DuPage, Kane, McHenry and Lake (IL) Counties. The South West Suburban Contract is used in southern and southwest Cook County. The Chicago Board Contract is used typically in Chicago. All of these contracts may 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.
In most cases, the attorneys for the buyer and the seller have 3 to 5 business days to approve, disapprove or make modifications to the contract. It is, therefore, critical that a copy of the executed contract be sent to your attorney as soon as possible. Normally we at Borla, North & Associates do not make modifications to a sale contract. The contract is generally fair in its basic form. The only modifications we would make are modifications specific to the transaction -- for example, if post-closing possession was required or there are some other conditions that were not included in the contract already. During the attorney modification period, it is very customary, however, for the buyer’s attorney to make modifications. Once those modifications are received by our office, they are forwarded to you for review and to the Realtor (if there is one). We can then discuss with you the applicability and acceptability of any of the modifications that are proposed by the other attorney. The contract usually specifies that the modifications must be agreed to within 10 business days after the acceptance date of the contract otherwise the contract becomes null and void.
Most contracts are contingent upon a home inspection by a licensed inspector within 5 business days of the contract. You should coordinate with your Realtor to make arrangements for the home inspection. At the time of the home inspection, it is our suggestion that you leave the premises. Our experience is that with a seller present, the opinion of the inspector and the opinion of the owner may differ and it becomes an argument as to who is right and who is wrong. Remember, the home inspector was hired by the buyer. Let the home inspector do his job. Let the buyer then make whatever demands for repairs, replacements, etc. that the buyer wants to make. Those are typically received by us within the first 5 business days.
The first 10 business days after acceptance of the contract are very stressful for a seller. It is during this period that the home inspection is made and the demands are submitted to the seller. It is during this period that the attorney modification issues are raised and also to be discussed. After those two issues are agreed upon, typically the only remaining issue is the mortgage contingency.
All contracts contain a provision that the buyer has an obligation and the contract is contingent upon the buyer securing a mortgage in a specified amount; at a specified rate within a date prior to the closing. The seller has an obligation to cooperate with the buyer’s lender in making the property available for the appraisal. Beyond that, a seller can do very little until the mortgage contingency date arrives. That is the date that we here at Borla, North & Associates diary on behalf of our clients. We will typically contact the buyer’s attorney to determine whether or not a mortgage has been obtained. Frequently on the last day the mortgage was to be obtained, we will receive a request for an extension from the buyer’s attorney. We try to determine why the extension is being requested and the reasons for the extension request. Extensions of mortgage contingencies are frequently requested to obtain a final appraisal. A seller should understand that the buyer does not have an obligation to inform the seller that the mortgage has been obtained. The language in the contracts provide that unless the buyer notifies the seller that the mortgage has not been obtained, then the contract remains in full force and effect. With a mortgage contingency, no news from the buyer is good news.
Tax Proration Provision
All contracts contain provisions for the proration of real estate taxes. In Illinois, real estate taxes are paid one year in arrears. For example, the taxes for 2007 are paid in two installments sometime during the 2008 calendar year. In most counties other than Cook, those taxes are paid in June and September. In Cook County they are paid typically in March and October. We cannot determine the exact amount of the taxes until the tax bill is sent. Unpaid taxes for the period up to the date of closing are prorated to the date of closing. That proration may include an expected increase in the tax bill. For example, we frequently increase the last known full year tax by 5% and use that as the basis for proration from January 1 to the date of closing. Please note that if you have an escrow with your bank for real estate taxes, this escrow does not apply against the credit you will have to give the buyers. The escrow with your lender is typically refunded 3 to 6 weeks after the closing.
The contract provides for a date for closing. This is the date when you as a seller will convey the deed and receive the proceeds from the sale. This is also the date where you will turn over the keys and grant the buyer possession. Sometimes it is difficult for sellers to attend the closing and move on the same date. Therefore, we make our office available for you to presign the documents prior to the closing so that you can devote your attention to vacating the property. We frequently wire the proceeds to an account or make arrangements to meet with you after the closing to give you the net proceeds check along with the various closing statements that are generated at the closing.
Prior to the closing, our office will obtain information from you so that we can order a survey and order a preliminary title report from a reputable title insurance company. We will order the necessary payoff letters from your mortgage holders and, if you are in a townhouse or condominium, we also order the necessary letters from the associations to verify that you are current in dues.
I hope this outline of the closing procedures has been helpful. Please do not hesitate to contact us if you have any further questions.