Now that you have decided to purchase a home, the first person you should contact is your attorney. Your attorney will assist you in reviewing the various contracts and agreements you will sign in the course of a home purchase.
The first documents you will be asked to sign will be provided by your Realtor. It is usual that buyers sign a Buyer Agency Agreement and Dual Agency Disclosure. The Buyer Agency Agreement creates the agency relationship between you and the Realtor. The Dual Agency Disclosure allows the Realtor to show homes when the Realtor is also the listing agent.
Normally the listing agent will pay the buyers’ agent’s part of the sales commission. Occasionally, the buyers agree to pay the Realtor directly. If this occurs, you will be signing a Buyer Representation Contract.
Whether you find a home without the service of a Realtor or you have established a relationship with a Realtor, the next contract you (as the buyer) will sign is the written offer to purchase.
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.
Structural Defects - Clearly structural defects involve a major expense to repair. Unless these defects have been disclosed and are reflected in the price, we would expect these defects to be repaired at the seller’s expense.
Safety Issues - Safety issues involve an unsafe condition in the home such as a cracked heat exchanger, double tapped fuses, etc. You cannot buy a home that is a threat to you or your family.
Other Defects - Other defects include items arising from a lack of maintenance or other repairable items, i.e., a dripping faucet, cracked window. It does not include routine maintenance. It is within your discretion to request the repair of these items.
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.
Illinois is a “table funding state.” That means that at the closing table you will receive a deed and other documents and will turn over the funds along with your mortgage proceeds to pay the seller who will walk away with a check. At the closing is when you, the buyer, will be signing the loan documents together with the necessary documents to convey title. Our job is: to explain all of the loan documents to you; to review all of the financial aspects of the closing; to make sure that you are paying no more or no less than what the contract provides for; and to ensure you are receiving clear title to the property. At the closing, we will again review the title commitment issued by the title company, which may show some items that need to be waived or cleared, such as the seller(s)’ prior mortgage(s) or tax matters. This will be explained to you during closing in more detail. We then receive a waived title commitment to make sure those matters will not appear on your title policy. At Borla, North & Associates an attorney, not a paralegal, attends the closing.
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.