Contingencies in an Illinois Home Purchase Real Estate Contract

Buying and selling real estate, especially a home, has always been a big purchase for most Americans. This is especially true with Illinois home prices rising and inventory tightening. A properly drafted real estate purchase contract and proper legal representation can protect both the home buyer and seller.

Chicagoland Residential Real Estate Offers To Purchase

Recent reports indicate that Illinois home prices are continuing to increase but home sales are down almost 11 percent compared to a year ago. In the nine-county Chicagoland area, home sales were down almost 10 percent due to low inventory.  In Illinois, buyers who wish to purchase real estate make a written offer using a real estate purchase contract. The real estate purchase contract must include a description of the property, all of the fixtures and personal property included with the sale, any warranties, and the purchase price.

The real estate offer to purchase also may include contingency clauses (or contingencies for short), which outline actions must be met in order for a real estate contract to be binding. If contingency conditions are not satisfied within the time frame specified, then the sale becomes void, unless the contingency is waived by the party who benefits from the contingency.

Purchase Contract Contingencies

Purchase contract contingencies must be satisfied within certain time frames in order for the sale to go through. Contingencies protect a buyer from major issues or concerns. However, the seller can require that the contingencies be completed or dealt with within certain time parameters. Therefore, assuming both the buyer and the seller are interested in completing the sale, it is important to keep track of when and how any contingencies must be satisfied.

Four of the most common contingencies include—

Financing

The most common contingency clause is a financing clause. The clause makes the offer conditional on the buyer being able to secure a mortgage for the amount and terms specified in the offer, including interest rate, as well as the type and duration of loan (i.e., 30 year fixed).

Appraisal

An appraisal contingency is used to make sure that the real estate property appraises, or is valued at, a minimum, specified amount. If the property appraises at an amount less than the specified amount, the buyer can terminate the real estate purchase contract. Typically, the buyer may waive the contingency if he or she wishes to proceed with the sale despite a low appraisal value. Generally, if a buyer fails to notify the seller that the property did not appraise at the required value by the time specified, the contingency is deemed satisfied and the buyer cannot use the appraisal to back out of the deal.

Sale Of Buyer’s Property

Buyers sometimes make the purchase of a new real estate property contingent on the sale the buyer’s current residence. This contingency is often used if the buyer needs proceeds from the sale of his or her current residence in order to have sufficient funds to close on the new property.

An offer to purchase that is based on the sale of the buyer’s property is a weaker offer to the seller and may cause the seller to reject an offer to purchase, especially when housing inventories are low. A seller may also counter with a “kick-out” clause, which allows the seller to accept the buyer’s offer but also continue to market the property. If the seller finds another qualified buyer, the seller can then give the first buyer a specified amount of time to remove the contingency clause in order to keep the original purchase contract alive, otherwise the seller can sell to the new buyer.

Inspection

An inspection contingency gives the buyer the right to have the real estate inspected within a certain period of time after the offer is accepted. Depending on the terms of the condition, the buyer typically has two options in the event of an unsatisfactory inspection: (1) cancel the contract and demand that the earnest money deposit be returned; or (2) notify the seller within a specified amount of time regarding the concerns revealed in the inspection and give the seller the option of making repairs or offering to reduce the purchase price, depending on the issues and wording of the contingency.

Buying and selling a home is a big deal. It is important to make sure that you have someone on your side, representing your interests. At the Law Offices of Gilbert C. Schumm, we have over 35 years of experience representing clients in Schaumburg, Illinois and the surrounding area, including Chicago, Arlington Heights and Palatine.  If you are in Cook, Du Page or Will County please call us for a free consultation at (847) 559-9109.