When signing a real estate contract, it is important to know what you are signing. If you don’t, one of the many clauses could come back to haunt you later. Here are three such clauses found in the Chicago Association of Real Estate Condominium Real Estate Purchase Agreement that you should know about.
The mortgage contingency states that a seller can find a lender for the buyer if the buyer cannot find one on their own. Although this can be helpful to both the buyer and seller, it can also be detrimental. Here’s why:
Pros: If a buyer cannot find a loan, they will not be able to close. Allowing the seller to provide an alternative can keep the closing process moving forward, allowing both the buyer and seller to meet their goals.
Cons: If a buyer cannot find a loan, the seller has the option to find one that may not be the kind of loan the buyer wishes to have. The interest rate could be high, the closing costs could be high, the length of the loan could be wrong, etc.
Here’s an example: A buyer wanted to buy a condo that had been foreclosed. However, when applying for a loan, their bank didn’t like the way the HOA had operated and would not lend the money. The buyer decided they wanted out of the contract. Unfortunately, the seller was a bank and was willing to give a loan. The only way for the buyer to back out was to lose their earnest money.
Real Estate Taxes
In Chicago, real estate taxes are paid a year late. So, at the end of 2017, homeowners will be paying their 2016 taxes. Buyers, of course, do not want to pay the taxes for the home during a time they did not live there, so the real estate tax clause prorates the taxes due from the seller.
Keep in mind that taxes in Chicago are continually rising. The prorated amount should be between 5 and 25% more than the current rate.
For sellers, coming up with this amount may seem steep, but you will have the option of writing it off for the IRS.
According to the Chicago Condo Act, the seller has 3 to 4 days to get all the documents concerning the HOA to the buyer after the contract has been signed. Once the buyer receives the documents, they have 48 hours to review them. If they find items that they do not like, they can then back out of the contract.
For sellers, you need to be sure that you get all the documents to the buyers as quickly as possible. If you fail to provide the documents until a few days before closing, you may find the buyer legally backing out of the contract. Paperwork delays can be costly.
These are just three examples of clauses that can cause issues if you don’t understand what you are signing. That is why you should call me today. I have experience working in the Chicago area and understand contracts and how to keep you safe. I look forward to hearing from you!