For many years, all real estate contracts were in paper form, and various laws and customs dictated that most Real Estate Contracts had to be written (hard copies or paper copies) to be valid or enforceable in court (See Agency).
However, our technology advancements have progressed to the point that we can transmit documents over the internet, and more recently, interact with these electronic documents. One of the interactions allows us to edit or change these electronic documents. This, of course has led to the ability to initial, change and sign Real Estate Contracts.
The original Real Estate Licensing Law that required the buyer and seller to be given original hard copies of the signed and executed contract presumed the use of paper or a hard copy format is still on the books.
But, Illinois has also recognized the digital world and passed a law making digital documents and electronic signatures/initials legal.
The Illinois State law, The Uniform Electronic Transaction Act (UTEA), passed in 1999 also recognizes electronic signatures as legally binding – i.e. handwritten and electronic signatures (e-signatures) are equally legal forms of signatures. Additionally the legality of the electronic form of real estate contracts (e-real estate contracts) was also confirmed.
The use of electronic signatures has been a topic of discussion and laws (Federal and State) for many years. A Federal law covering this subject was also passed in 2000, the Electronic Signatures in Global and National Commerce Act (ESIGN) recognizes electronic signatures as legally binding in business transactions.
DIFFERENCE BETWEEN E-SIGNATURES (ELECTRONIC SIGNATURES) AND DIGITAL SIGNATURES
When discussing the differences between eSignature and Digital signature, organizations typically refer to E-Signature as the process a person goes through to demonstrate their intent during an electronic transaction. While a digital signature refers to the encryption technology containing critical metadata pertaining to the e-signature. In this case, the e-signature is the legally binding record and the digital signature is the underlying technology that helps verify the authenticity of the transaction. Both digital signatures and other electronic signature solutions offer the capability to sign and authenticate the signer. However, they differ in their purpose, underlying technologies, geographical use, and as mentioned before, legal and cultural acceptance.
PROBLEMS WTH E-SIGNATURES (ELECTRONIC SIGNATURES) AND REAL ESTATE CONTRACTS
However, several significant questions remain concerning e-real estate contracts and e-signatures. First, how do you prove that the e-signatures are the real signatures of the parties to the contract (buyers/sellers/landlords/tenants)? Secondly, how do you prove that the e-real estate contract contains exactly the same language agreed upon by the parties when they signed the contract utilizing an e-signature? Obviously, if there is good will between the buyer/seller or landlord/tenant, this issue may not be important. Where there is NOT good will between the parties, either currently or some time in the future (buyer’s remorse, seller’s remorse, landlord remorse, tenant remorse) or other problems, and the electronic content of the document is challenged or the electronic signature is challenged, there could be a serious problem. For instance, one of the parties could claim that the e-real estate contract has been modified since their e-signature was attached to the document.
E-SIGNATURE AND E-CONTRACT VERIFICATION
Several options are available The first option would be to simply explain to the parties and ascertain if they are willing to accept that the e-real estate contract and e-signatures will be valid unless somebody objects to the signatures or contract. If such an objection is received it may be difficult to prove the validity of the e-signatures or the content of an e-real estate contract as it existed at the time of those e-signatures.
The second option would be to follow the procedures provided for under Illinois law for the establishment of a “secure electronic signature” and a “secure electronic record.” This involves the process of using a digital signature or e-signature using an asymmetric algorithm certified by the Secretary of State as a qualified security procedure. However, this process seems to present hurdles or roadblocks which are difficult to overcome in the context of the transaction. The third option is for the parties to the transaction to agree to a qualified security procedure in advance of the signing of an e-real estate contract. This qualified security procedure must be commercially reasonable under the circumstances, applied in a trustworthy manner and is reasonably and in good faith relied upon by the party wanting to enforce the secure electronic record (the e-real estate contract).
This third option is now being used by many real estate firms and brokers in Illinois. DocuSign is an example of a process which provides tracking and security of the electronic form of the real estate contract to assure that each party to the contract is aware of changes as they are made. Where final E-Signatures are obtained for the contract, a record of the information agreed to at that time is also maintained to protect against information being added after the parties electronically sign the document. Additionally, there are procedures in place in the DocuSign operation to assure the validity of the signatures utilized in the electronic document. All of these operations combine to provide a legal E-Signature use and E-Real Estate Contract use in Illinois real estate transactions.
The written/electronic agreements most commonly used by brokers and managing brokers are:
Quinlan & Tyson Decision
The 1966 Illinois Supreme Court decision in the case of Chicago Bar Association, et al. v. Quinlan and Tyson, Inc., placed certain limitations on real estate licensees in drafting a contract of sale. The court ruled that :
Real estate sales contracts that fit the “customarily used” requirement typically have been drafted by local bar associations and approved by the local REALTOR® associations. They are available in digital form, for use with digital systems such as DocuSign, or can be printed out for hard copy use.
All insertions and deletions must be at the direction of the principals, based on the negotiations. Advising a buyer or seller of the legal significance of any part of the contract or writing any change to the form language constitutes the unauthorized practice of law.
A licensee may not request or encourage a party to sign a contract or document that contains blank spaces to be “filled in later,” nor can the licensee make changes to a signed contract without the written consent of the parties.
If changes are made by the agreement of all the principals, the buyers and sellers must initial any changes they agree to add. All licensees can give each person signing or initialing the contract an original “true copy” (signed hard copy) or forward a copy of the electronically edited, initialed and signed electronic version of the contract to the buyer and seller, within 24 hours of the time of signing.
A licensee also must not prepare or complete any document subsequent to the sales contract or related to its implementation, such as a deed, bill of sale, affidavit of title, note, mortgage, or other legal instrument.
Listing and Buyer Agency Agreements
Listing and buyer agency agreements are employment contracts.
A listing agreement establishes the rights and obligations of the sponsoring broker as agent and the seller as principal.
A buyer agency agreement establishes the relationship between a buyer as principal and sponsoring broker as agent.
Customary Terms of Real Estate Sales Contracts
A real estate sales contract contains the complete agreement between the buyer of a parcel of real estate and the seller. Depending on the area, this agreement may be known as an offer to purchase, a contract of purchase and sale, a purchase agreement, an earnest money agreement, a deposit receipt, or a sales contract.
In Illinois, a licensee should not use any form titled “Offer to Purchase” if the form is intended to become a binding real estate contract. Illinois law requires that sales contracts indicate at the top “Real Estate Sales Contract” in bold type.
The contract of sale is the most important document in the sale of real estate. It establishes the legal rights and obligations of the buyer and seller. In effect, it dictates the contents of the deed.
Parts of a sales contract
All real estate sales contracts can be divided into a number of separate parts. Although each form of contract contains these divisions, their location within a particular contract may vary. Most sales contracts include the following information:
