Buying a Home
For most personal transactions, people do not consult their lawyers. Instead, they rely on advice and information from other professionals such as real estate brokers, financial planners, bankers, etc. That being said, buying a home is usually the biggest purchase you will make, so it can be worth consulting your attorney.
Your Realtor will likely use the standard Realtor form for our area. The Realtor form favors enforcement of the contract. You should be aware of the following provisions:
● Inspections. The standard inspection addendum provides that the buyer may inspect the property and provide to the seller within seven calendar days following the inspection notice of any unacceptable material defects. What constitutes a "material defect" is quite limiting, however. A material defect is defined as " a condition that would have a substantial adverse effect on the value of the real property, significantly impair the health or safety of future occupants of the property, or involves a component that is not in functional or working order."
Nothing disclosed in the Residential Real Property Disclosure Report can be used as a material defect. Age cannot be used as a material defect. Per the addendum, "The fact that a functioning major component may be near or at the end of its useful life shall not render such component defective." A buyer could sign a contract and then find out through the inspection that the roof and HV/AC are on their last legs. If the roof isn't actually leaking and the HV/AC is currently running, their age would not allow the buyer to negotiate repairs or replacement.
Likewise, anything that was in compliance with code requirements at the time of construction will not be a material defect. The inspection could reveal that an old home has original knob and tube wiring and asbestos insulation. Both can be safe, but could be a nightmare if the buyer wants to remodel.
● Deadlines. There are strict deadlines that apply to the Realtor contract (and most contracts). Regarding the inspection addendum, the buyer must notify the seller within seven days of the inspection of any unacceptable material defects. If the buyer misses the seven day deadline, the contract remains in force. The seller must deliver a written response to the buyer within seven days of receiving the notification. If the seller misses the response deadline, the seller must make all repairs requested by the buyer and the contract remains in force. If the seller responds timely that he/she will not agree to the repairs, the parties have five days to negotiate an agreement. During the negotiations, if a party takes more than two days to respond to an offer, the offer is deemed accepted. If no agreement is reached, the buyer must inform the seller within two days that he/she is declaring the contract void. If the buyer misses the deadline, the contract remains in force. There are similar deadlines with respect to an appraisal, financing, and title issues.
● Damages. If either party breaches the contract, the other party's damages are not limited to the amount of the earnest money. For example, if the seller breaches the contract, the buyer can sue for "specific performance," i.e., making the seller go though with the sale. If the buyer breaches the contract and the seller loses money due to delay or if the seller later sells the property for less than the price the buyer agreed to pay, the seller can sue for those amounts. In addition, the Realtor contract provides that whichever party prevails in the litigation is entitled to costs of the litigation and attorneys' fees. Most often, if the buyer breaches the contract, the seller will retain the earnest money and declare the contract void, however, the seller is not obligated to do so.
So, what can you do about these contract provisions? You are free to change any of them. If you are the buyer, you can make an offer with a contract other than the Realtor form or you can use addenda to the Realtor contract. You could include an attorney review period. A provision in the standard Chicago area form has a five day attorney review period. After the contract is signed, each party's attorney has five days to propose revisions (on anything other than price). If an agreement cannot be reached, either party can walk away. A buyer could also use an addendum that provides he/she can walk away for any reason after an inspection. In today's seller's market, a seller might not accept the addendum, in which case the buyer needs to decide to walk away or take the risk that the inspection will reveal non-material but expensive defects.
If you are looking to buy or sell, talk to your attorney. Don't wait until you have signed the contract to show it to him/her. It may be too late.
This article is for informational and educational purposes only and does not constitute legal advice.