The Residential Real Estate Transaction Process in Illinois
The residential real estate transaction process has some similarity across states but is governed by Illinois state law. It can be a much more complex process than one might think, so it is wise to have an experienced real estate attorney by your side, whether you are selling your property or buying a new one. think. You have found a house online that would be your perfect forever-home, or you are ready to put your home on the market. But what comes next?
In Illinois, a Closing is where a real estate transaction is finalized. Getting to the Closing is a cooperative process where the real estate broker, seller, buyer, mortgage lender, title company and attorneys all work together in order to successfully transfer property ownership in strict accordance with state and local laws. One thing that makes the Illinois process unique is that only attorneys may prepare the Closing Documents. It is in your best interest to hire a knowledgeable attorney familiar with the process so your sale or purchase transaction goes smoothly.
Read on to learn more about the residential real estate transaction process in Illinois, from making a Purchase Agreement through the Closing.
The Real Estate Purchase Agreement
The first step of the process is for the Buyer and Seller to negotiate purchase terms in a document called the Real Estate Purchase Agreement. This document lays out the sale price of the real estate, and any contingencies necessary in order to for the purchase to be finalized (to close). It will include all terms of the purchase including price and anticipated Closing Date. Many realtors use the pre-printed Multi-Board Residential Real Estate Contract, the current version of which is the 7.0, and it provides for most of the important items that all residential real estate contracts should contain, like common contingencies, and the terms of an attorney review and inspection period.
A contingency is any event or condition that must be fulfilled for the purchase and sale to occur that cannot be predicted with certainty, such as the buyer selling their existing home, obtaining financing, or the property appraising for a certain amount or passing the home inspection. Attorneys must be mindful of any contingencies within the purchase agreement because these dates are important milestones that must be complied with for the contract to remain enforceable. If contingency events do not occur, the party for whose benefit the contingency exists must terminate the contract or waive the contingency. For example, if the contract contains a clause that the buyer must obtain a mortgage loan for a certain amount by a certain date under a certain interest rate, and that they can terminate the contract without penalty if they are unable to do so, this is a Finance Contingency. If the buyer cannot get the loan they need to purchase the property, a Finance Contingency allows them to exit the contract without penalty. All buyers who are financing their purchase with a mortgage should have a Finance Contingency in their purchase contract.
After a buyer makes a written offer to purchase, the seller must decide whether to accept the offer. If the offer is less than what the seller was asking, the seller may try to negotiate for a more favorable price. In Illinois and most states, these negotiations are typically handled by the parties’ real estate brokers. Once the offer is accepted, the buyer and seller exchange the disclosures – certain items about the property that state law requires the seller to make known to the buyer. These include any knowledge of lead-based paint or radon hazards, hazardous mold, and the Illinois Residential Real Property Disclosure Report (listing any known structural problems of the home).
After this, the buyer will usually pay earnest money, a good faith cash payment held in trust by one the party’s brokers that will be credited toward the purchase price when the sale closes. Then the process moves on to its next phase: Attorney Review and Inspection
Attorney Review and Home Inspection Period
The Multi-Board 7.0 Contract provides that the Attorney Review and Inspection Period runs for five days after the date of acceptance of the contract. It is not uncommon for the parties to agree to an extension of this period to accommodate for scheduling the home inspector or continue negotiating modifications to the Contract. After the Real Estate Purchase Agreement has been accepted by the seller, the buyer should conduct a Home Inspection in order to discover any problems there might be with the property. While true that the seller is required to make certain disclosures under the law, they only must disclose items they know about or which cannot be discovered by a reasonably diligent inspection. The old adage “buyer beware” is never more true than in the purchase of real estate. A buyer must conduct an inspection to discover any issues about the property the seller does not know about, or which are so obvious that they do not legally have to be disclosed because any reasonably diligent inspector would discover them. It is important a buyer retains a licensed and knowledgeable home inspector, and that the buyer be the one to pay for the inspector’s services. This reduces the possibility that a home inspector will be loyal to anyone but the buyer and helps ensure a diligent and thorough inspection.
If problems are discovered, the buyer may ask for repairs or for the purchase price to be adjusted accordingly, and ordinarily does this through their attorney within the Attorney Review and Inspection Period. The buyer must take care to make their proposals as modifications and not counter-offers, because a counter-offer can be interpreted by the seller as terminating the contract. Using the Multi-Board 7.0 Contract and an experienced real estate attorney are two important ways a buyer can ensure their modification proposals are conveyed properly for a successful negotiation. If the seller agrees to make the repairs proposed by the buyer, they ordinarily must be completed prior to the Closing Date. Once all Contract modifications, if any, have been proposed by the buyer and accepted or rejected by the seller, the Attorney Review and Inspection Period concludes.
Finalize All Contingencies
After Attorney Review concludes but prior to closing, the Buyer must resolve any contingencies included for their benefit in the Purchase Agreement.
A common contingency is for the Buyer to obtain financing to purchase the home. Different steps and costs to obtain financing must be fulfilled depending on the bank or lender you are working with. Paperwork must be submitted in a timely manner for the loan to be approved. Often, homeowner’s insurance must be purchased in order to be approved for financing. Typically, a lender will require an Appraisal of the property to determine its value and the maximum amount the lender will loan for its purchase. The contingency events must either be satisfied or waived in order to move on to the next step in the process toward closing.
Order a Title Commitment
A Title Commitment is an agreement between a Title Company and a seller that the seller has full and ownership of the property, free and clear of any other liens or encumbrances. The Title Company will take responsibility for any miscalculation of interest in the transfer of the property by issuing a policy of title insurance. This document will detail who presently owns the property, and any matters of record that would affect the Sellers’ ownership, such as easements, judgment liens or other encumbrances recorded against the title to the property.
In order for the Title Commitment to be provided, the seller typically needs to obtain a survey of the property, which is performed by a licensed surveyor to determines whether there are any easements or other encroachments on the property. The seller’s attorney will review the survey and a report of title to determine if any items need to be resolved (such as encroachments, liens or judgments) before seller can convey clear title to the buyer. In many cases, the seller’s attorney will also act as the agent of the Title Company because the legal review they are performing benefits the Title Company as well as the seller. The seller needs to convey clear title, and the Title Company needs to issue a policy of insurance to the buyer that the title is clear. In this way, the interests of the Title Company and seller are aligned, and as long as the seller consents, their attorney can (and often will) represent the interests of the Title Company in the transaction as well.
Prepare Documents and Other Requirements for Closing
The following is a non-exhaustive list of documents and other requirements that must be completed prior to the Closing date, most of which the state of Illinois requires the assistance of an attorney to prepare or satisfy under Illinois law:
The Deed
The Deed is a document that describes the property, names the respective parties and includes the signature of the person transferring the property. This document is signed by the seller at or before arriving to the closing table, and officially transfers title from the seller to the buyer. After that, the Title Company will have the Deed recorded so it serves as public notice to all who may want to inquire as to the property’s ownership.
The Bill of Sale
The Bill of Sale transfers the ownership of any personal property included in the purchase, such as laundry machines or dishwashers. It is essentially a receipt demonstrating that the Seller received all required payment for the sale of any personal property included in the sale of the real estate.
The Affidavit of Title
This is a sworn statement by the seller that they have the right to convey the property because nobody else can claim a superior right to title to the property.
The ALTA Statement
The American Land Title Association (ALTA) Statement is another sworn statement by the seller stating any known title issues, this time for the benefit of the Title Company that is insuring title. By signing this document, the seller swears that since the time of the property survey and issuance of the preliminary commitment of title insurance, seller has not done anything to impair or encumber title to the property.
Illinois PTAX Form
This is a standard Illinois form where the property transfer tax liability of the property is calculated and reported, which can vary depending on what municipality the property is located in. For properties purchased in Chicago, this includes a City Transfer Tax Declaration, Country Transfer Tax Declaration, and State Transfer Tax Declaration.
The Zoning Certificate
Required in some municipalities, including Chicago, the Zoning Certificate certifies that the property is zoned for the buyer’s intended use.
Execute Financing Documents
All financing documents must be signed, including the Mortgage, Note, and Mortgage Disclosures at the closing table.
Homeowners or Condominium Association Disclosures
If the property question belongs to a Homeowners or Condominium Association, the Seller is required to provide the Buyer with documents stating that there are no unpaid assessments on the property, and certain other disclosure requirements, which are found in Section 22.1 of the Condominium Property Act (which is why these are often called the “22.1 Disclosures”.)
The Closing Statement
This document sets forth all the costs and fees associated with the transaction.
The Closing
Finally, the day has arrived: The buyer and seller meet with their lawyers to sign the Closing Documents. All documents in Step 5 probably have been reviewed by both the Buyer and the Seller already, but if not, that is done at the Closing. Keys are exchanged and the agreement is deemed final once the purchase money is transferred to the seller.
In summary, the Real Estate Transaction Process in Illinois is straightforward but tedious. It can be a more difficult a process than meets the eye, involving extensive drafting of paperwork and collaboration between different individuals. It is important that Buyers and Sellers hire an attorney they trust to ensure all their needs are met and the transaction proceeds smoothly. The summary is not intended as a how-to guide or legal advice, as it does not give a complete description of every step in the process. It is merely a general overview to provide information for people who are interested in how the residential real estate transaction process generally works in Illinois.