Many sales contracts provide for the following:
The sale of a residence often includes personal property, such as drapes, as well as items that are fixtures, such as screens and storm windows or a built-in range. In Illinois, any fixtures that might be questioned as fixtures are listed in the sales contract. This can help to eliminate possible arguments at the time of the final walk-through. Even attached bookcases and sometimes shrubbery have managed to disappear if they are not listed. Title to personal property usually is transferred by a bill of sale, prepared by the attorney.
Earnest money deposits. It is customary (although not legally required) for a purchaser to provide a deposit when making an offer to purchase real estate. This deposit, usually in the form of a check, is referred to as earnest money. The earnest money deposit is evidence of the buyer’s intention to carry out the terms of the contract in good faith. Usually the check is given to the listing sponsoring broker, who holds it for the parties in a special account. If the offer is not accepted, the earnest money deposit is returned immediately to the would-be buyer.
The amount of the deposit is a matter to be agreed on by the parties. Under the terms of most listing agreements, the sponsoring broker is required to accept a “reasonable amount” as earnest money. The deposit should be an amount sufficient to :
Many contracts provide that the deposit becomes the seller’s property as liquidated damages if the buyer defaults. To release earnest money in Illinois, for any reason, signatures of both parties are required.
Sponsoring brokers who are holding earnest money deposits in sales and security deposits in leasing must establish special trust (or escrow) accounts for the deposit of funds entrusted to them in connection with real estate transactions. A sponsoring broker need not open a special escrow account for each earnest money deposit received, however, but may deposit all earnest money funds in one account. The escrow account is noninterest bearing, unless both parties agree in writing. If interest is paid on the deposit, the disposition of any accrued interest must be designated by the parties in writing, and a separate interest bearing account must be set up for that deposit.
Escrow Account
See Chapter 16, Illinois Real Estate Licensing Law, for more information about Escrow Accounts.
Each sponsoring broker who utilizes an escrow account to hold Earnest Money Deposits:
Only the sponsoring broker or an authorized agent may withdraw funds from the account. Fees and/or commissions earned by the sponsoring broker that are to be paid from the funds in this account are to be disbursed by the sponsoring broker from the account no earlier than the day the transaction is consummated or terminated and no later than the next business day after consummation or termination of the transaction.
Commingling
Sponsoring brokers are strictly prohibited from commingling, that is, depositing earnest money in their personal or corporate operating account. The very act of depositing earnest money in these accounts constituters a violation of Real Estate Licensing Law. Sponsoring Brokers may deposit funds into the Escrow Account for the purpose of maintaining a minimum running balance required by the depository or to pay for checks. If a sponsoring broker uses his own funds to avoid incurring service charges, scrupulous records must be kept.
Conversion
Conversion involves the use of the escrow funds to pay for personal or business expenses. This is also a violation of Real Estate Licensing Law.
Equitable title
When a buyer signs a contract to purchase real estate, the buyer does not receive legal title to the land. Legal title transfers only on delivery and acceptance of a deed. However, after both buyer and seller have executed a sales contract, the buyer acquires an interest in the land. This interest is known as equitable title. Equitable title may give the buyer an insurable interest in the property.
Destruction of the premises
Illinois has adopted the Uniform Vendor and Purchaser Risk Act, which specifically states that the seller bears any loss that occurs before the title passes or the buyer takes possession.
If the entire premises or a material part of it is destroyed, the seller cannot enforce the contract against the buyer. Any earnest money must be returned. On the other hand, if title or possession has been transferred to the buyer, he must pay the full contract price, even in the event of partially or totally destroyed premises (e.g., the house burns while both parties are at the closing).
Liquidated damages
To avoid a lawsuit if the buyer breaches the contract, the parties may agree on a certain amount of money that will compensate the seller. That money is called liquidated damages. If a sales contract specifies that the earnest money deposit is to serve as liquidated damages in case the buyer defaults, the seller will be entitled to keep the deposit if the buyer refuses to perform without good reason. The seller who keeps the deposit as liquidated damages may not sue for any further damages if the contract provides that the deposit is the seller’s sole remedy.
Contingencies Additional conditions that must be satisfied before a sales contract is fully enforceable are called contingencies. A contingency includes the following three elements:
The most common contingencies include:
Continue to Market a Signed Contract with Contingencies
A seller may insist on an escape clause, which permits the seller to continue to market the property until all the buyer’s contingencies have been satisfied or removed. The buyer may retain the right to eliminate the contingencies if the seller receives a more favorable offer.
Amendments and addendums
An amendment is a change to an existing contract. For instance, the parties may agree to change a closing date or alter a list of personal property items included in the sale. Any time words or provisions are added to or deleted from the body of the contract, the contract has been amended. Amendments must be signed or initialed by all parties.
On the other hand, an addendum is any provision added to an existing contract without altering the content of the original. An addendum is essentially a new contract between the parties that includes the original contract’s provisions “by reference”; that is, the addendum mentions the original contract. An addendum must be signed by both parties.
Amendment = Change    Addendum = Addition
Illinois requires several mandatory disclosures by sellers and licensees acting as their agents, such as disclosure of property conditions and agency relationships. These disclosures are included in the sales contract by physical attachment or by reference.
Options
An option is a contract by which an optionor (generally an owner) gives an optionee (a prospective purchaser or lessee) the right to buy or lease the owner’s property at a fixed price within a certain period of time. The optionee pays a fee (agreed-on consideration) for this option right. The optionee has no other obligation until he decides to either exercise the option right or allow the option to expire. An option is enforceable by only one party – the optionee.
An option contract is not a sales contract. At the time the option is signed by the parties, the owner does not sell and the optionee does not buy. The parties merely agree that the optionee has the right to buy and the owner is obligated to sell if the optionee decides to exercise his right of option. Options must contain all the terms and provisions required for a valid contract.
The option agreement is a unilateral contract. If the option is not exercised within the time specified in the contract, both the optionor’s obligation and the optionee’s right expire. An option contract may provide for renewal, which often requires additional consideration. The optionee may recover part of the consideration paid for the option right if the optionee provides a decision prior to the expiration date. The contract may state whether the money paid for the option is to be applied to the purchase price of the real estate if the option is exercised.
Land Contracts — Installment Contract (Seller Financing)
A real estate sale can be made by a land contract, also called a contract for deed, an installment contract, or articles of agreement for warranty deed. Under a typical land contract, the seller (also known as the vendor) retains legal title. The buyer (called the vendee) takes possession and gets equitable title to the property. The buyer agrees to give the seller a down payment and pay regular monthly installments of principal and interest over a number of years. The buyer also agrees to pay real estate taxes, insurance premiums, repairs, and upkeep on the property.
Any provision in an installment contract or land contract is void if the document:
Any installment contract for the sale of a dwelling that consists of 12 or fewer units is voidable at the option of the buyer unless either a certificate of compliance or an express warranty that no notice of a building code violation has been received within the past ten years is attached to or incorporated into the contract. If notice has been received within the past ten years and not complied with, each notice must be listed with a detailed explanation. Neither buyer nor seller may waive this requirement.
A buyer who, under an installment contract, purchases residential property containing six or fewer units (which includes one unit in which the purchaser will reside) from a land trust must be told the names of all beneficiaries of the trust at the time the contract is executed. The buyer has the option to void the contract if the names are not revealed.
Parole evidence rule
The written contract is assumed to be the complete agreement of the parties.
