In just about any real estate transaction, the number and complexity of contracts make it more than a little confusing. Nevertheless, contracts play a big role in real estate, especially when it comes to real estate investing. So whether you’re a buyer, a seller, or a full-blown investor, you need to have an understanding of real estate contracts. And that’s the reason for this guide to Chicago real estate contracts.
What Is a Real Estate Contract . . . Really?
In broad terms, Chicago real estate contracts are “legally binding agreement[s] between two or more parties for exchange, purchase, or any other type of real estate transaction.” A contract, then, is an official document that “outlines the terms agreed upon after negotiations have ensued” and is “required by the Statute of Frauds (SOF) in U.S. common law to be in writing and signed by both parties to be enforceable.”
Real estate contracts are an essential component in the successful execution of real estate transactions. They are designed to protect all parties involved in the transaction and so form the basis for any legal action if there are problems or disputes.
You do need to be aware that contract laws vary from state to state. To find out more about the laws governing Chicago real estate contracts, contact a local agent at 773.233.2301.
Elements of Real Estate Contracts
Regardless of the state, most real estate contracts have some common elements, usually required to render them enforceable. These are . . .
OFFER
“One party typically makes an offer by preparing a written real estate contract, signing it, and handing it to the other party. The other party either accepts the offer, makes a counteroffer, rejects it, or fails to respond.”
ACCEPTANCE
Acceptance occurs when the other party signs – thus accepting – the offer. In the case of a counteroffer, “the original offer will be terminated and it won’t be legally binding since both parties didn’t agree to the terms. When the offer is rejected, it is terminated. If there is no response to the offer, it automatically terminates by the expiration date indicated on it.”
CONSIDERATION
Typically money, the consideration can be anything of value exchanged from party to party in the transaction.
LEGAL CAPACITY
This ensures that the parties involved are in fact eligible and able to enter into a legal contract. This means, for example, that they can’t be minors or mentally impaired.
LEGALITY OF PURPOSE
This simply ensures that the contract doesn’t call for or designate any action that is illegal.
Important Types of Real Estate Contracts
There are all kinds of Chicago real estate contracts, but the four most common and most important are . . .
PURCHASE AGREEMENT
The most common type of contract, a purchase agreement (or sales contract) is “binding contract between two parties (property buyers and property seller) to transfer a particular property. This contract specifies the details regarding the sale of a property.”
The typical elements of a purchase agreement are:
- Identification of the involved parties
- Property description
- Condition of the property
- Purchase price
- Contingencies
- Appliances/fixtures included in/excluded from the sale
- Amount of earnest money
- Deed type
- Closing costs and who pays how much
- Signatures
- Terms of possession
- Closing date
The most common types of purchase agreements are:
- State/Association Purchase Agreement – Used when a real estate agent is involved
- General Purchase Agreement – Shorter and used when no agent is involved
- Property-Specific Purchase Agreement – Used for properties “that are not in the traditional single-family paradigm,” a mobile home or vacant land, for instance
REAL ESTATE ASSIGNMENT CONTRACT
This one of the Chicago real estate contracts gives an investor the rights to buy a property while not actually purchasing it. Typically, it is “used in a wholesale strategy to facilitate the sale of a property between a homeowner and an end buyer. A real estate assignment contract is initiated when the property owner agrees to sell the rights to purchase the property to an investor and both parties sign a contract binding themselves to the imminent deal.”
LEASE AGREEMENT
As the name plainly suggests, this contract is used when there is a lease situation with a landlord and tenant. It “binds a property owner (landlord) and a renter (tenant) to the property. The landlord agrees to offer his/her property for the tenant to reside in at a specified monthly rate.”
POWER OF ATTORNEY
Unique among real estate contracts, this one “is used in situations where the principal (a person who has given permission for someone to act in his/her place) is not physically able to sign a real estate contract.” In such cases – typically owing to mental disability, hospitalization, or being out of country – the person appointed by the principal acts as the power of attorney on the principal’s behalf to sign contracts.
Let Your Chicago Agent Guide You
The world of real estate contracts can be pretty confusing even to the experienced, considering the many different types, uses, and requirements. Your best bet in successfully navigating this contractual tangle is to have a good real estate attorney and a good local agent in your corner. We’ve got you covered on the experienced agent. Get the help you need with Chicago real estate contracts: contact us today at 773.233.2301.