Selling a Home: Legal Terms and Expenses

Barrington Illinois Real Estate Lawyer

We typically provide the following initial information to clients who are selling their property:

What is a Real Estate Contract?

The "contract" or "sales contract" is a written agreement that a buyer will buy a certain property for a certain price at a stated time and that the seller will at that time give the buyer clear title. These contracts are usually prepared either by attorneys or real estate agents and sometimes will be called "Offer to Purchase". Whatever their name, once these documents are signed by both buyer and seller, they are binding.

The usual contract will set the stage for the events to follow. For example, a contract signed on April 1 may provide that the buyer is to pay for the property on June 1 and receive possession and title at the same time.

Since under the contract the seller normally bears the risk of loss of the premises until the closing, it is essential that the seller's casualty or homeowners insurance remain in effect until the closing has occurred.

Lead Paint Disclosure

If you are purchasing a residential dwelling built prior to 1978, federal law requires real estate sellers, brokers or agents to disclose any known lead-based paint defects in the home. In addition, the seller, broker or agent must disclose all documentation about the presence of lead paint and allow you to have the home tested for lead contamination. You should be given ten days to inspect the home for lead paint before being bound by the real estate contract, unless otherwise agreed upon by you and the seller. Generally, the cost for the lead paint inspection is a buyer's expense while the seller typically pays to cure any lead paint defect. Furthermore if there is a lead defect in the home, the seller, broker or agent must give the buyer a copy of an informative pamphlet on protecting your family from lead in the home. These disclosure requirements are not applicable to housing for the elderly or persons with disabilities where no child under the age of six is a resident, homes without a separate sleeping area, and sales from or through a foreclosure proceeding.

Earnest Money

Most contracts provide that the buyer will put up earnest money of some amount to assure that the buyer will complete the transaction. The earnest money is usually held by a real estate broker or an attorney. Many contracts provide that the buyer has a certain number of days after the contract is signed to deposit all of his earnest money. The earnest money may be forfeited in the event of the buyer's default, broker's commissions paid from it, and the balance paid to the seller.

Buyer's Mortgage

Many buyers will have in their contracts a contingency clause which releases them from the transaction and provides for the return of their earnest money if they give notice of their inability to obtain mortgage financing on satisfactory terms within a certain period of time. The seller should determine if the financing did in fact become available within the required time period.

Seller's Mortgage(s)

Before the "closing", the seller's mortgage lender(s) will be asked to verify the amount necessary to pay off the existing mortgage(s), plus costs of releasing the mortgage(s) and any prepayment penalty, less any tax or insurance reserves. This indebtedness usually will be paid at the "closing" and deducted from the seller's net proceeds.

Title Questions and Survey

Most contracts require the seller to furnish title evidence to the buyer before the closing showing the condition of title to the property. This title evidence may be a commitment for title insurance provided by a title insurance company, or an abstract of title (or in some cases, a Torrens Certificate). The buyer may obtain an attorney's opinion or rely on an opinion obtained by the buyer's mortgage lender. The process of bringing the title evidence up to date is most often initiated by the seller's attorney. Prior to the closing the seller will be asked to furnish a survey and deliver his title evidence for examination. You should inform us immediately of any possible issues affecting title for which you are aware.
Chicago Title Insurance Company
Ticor Title Insurance Company

The Closing

The "closing" is the event when the purchase price is paid and the seller gives title to the property to the buyer by, delivering a deed and certain other documents. The closing usually takes place at the bank or savings and loan association where the buyer is obtaining his mortgage, or the seller's title company. If no mortgage is involved, the closing may be at the office of an attorney or a real estate broker. Title companies also act as the closing agents.

At the closing, all financial settlements or adjustments between the buyer and seller (for the seller's unpaid mortgage balance and taxes and the like) are set forth in a written statement, called a "Closing statement."

What the Seller Does Before the Closing

Shortly before the closing the seller should be advised of the exact dollar amount which he will receive after payment of any existing mortgage balance, taxes, brokerage commission, and other expenses of sale. This net amount is normally paid to the seller at the closing in the form of a cashier's or certified check. At that time (or shortly before) the seller will execute the deed and other title documents.

Possession

Contracts usually provide that the seller will give up possession of the premises either at the closing or shortly after. Keys are delivered and all utility meters are read as of the possession date. Many contracts will also provide that certain appliances, fixtures, and other personal property are to be delivered to the buyer, and that the residence is to be delivered free and debris and in "broom clean" condition. Often the seller will also be obligated to maintain and repair the property, fixtures and appliances until possession is given. Possession arrangements should be reviewed prior to the closing. It is common practice to inspect the heating and cooling systems and appliances and to pass on the names of tradesmen.

Usual Costs in Selling a Residence

The Seller may expect to incur expenses for the following, many of which may be deducted from the sales proceeds at the closing:

1. Title Insurance or abstract charges;
2. Any mortgage loan balances, plus release fees, as well as any other amounts needed to pay off any liens or encumbrances;
3. Unpaid real estate taxes through date of possession (because a given year's real estate taxes are payable the following year, a substantial credit for this items will normally be given to the buyer);
4. State of Illinois, county and municipal revenue stamps;
5. Survey (not always required);
6. Attorney's expenses and fees;
7. Brokerage commissions; and
8. Miscellaneous condominium charges.

The amounts of these expenses may usually be estimated in advance.