Purchasing a home should be an exciting experience.  Here is a brief overview of some of the common components.

For the buyer, the journey begins with the decision to buy, and a determination of what is affordable.  A quick consultation with your bank or lender can get you focused on the right price range, so that your search is efficient as possible.

The next step entails some reflection on what is important to you.  One factor is the type of structure — single family, townhouse, small condominium, and high-rise buildings all have different benefits and limitations.  Other considerations may include the age of the building, location, schools, transportation, view, parking, property size and features, and anything else you want to prioritize.  Your real estate broker should be able to help identify properties that are suitable candidates.

When you are ready to make an offer on a property, determine your strategy and the upper limit you are willing to pay, and prepare your first offer accordingly.

Once the seller accepts your offer, several important clocks start to run.  The shortest of them is for the inspection and attorney review periods.  The inspection period allows you to schedule a walk-through with a licensed home inspector to identify any defects with the property.  Your broker should be able to refer you to a home inspector.  Also, the seller is required to provide various disclosures about the condition of the property to you.  If you have any questions, or any significant defects are disclosed, you may want to review them with your inspector.  Attorney review allows for certain changes to the contract where appropriate.  Both of these periods usually last only a couple days, so it is very important that you are ready to act quickly and keep your attorney informed.

Unless you are paying cash, you also will need to apply for a mortgage by selecting a bank or lender, filling out an application, and providing various records in support.   Decide how you will hold title to the real estate so that you can apply for the loan accordingly.  If you have questions about different ways to hold title, ask your attorney.

If there is a homeowner association, such as with a condominium or townhouse, the seller will be required to provide certain documents, such as the Declaration and Bylaws, Rules and Regulations, budgets, and certain disclosures from the association.  You will have a certain period of time – again, usually just a few days — to review these documents and decide whether the property is appropriate for you.

Once you get through these items, contact your insurance agent to obtain an appropriate policy.  Many lenders require proof of insurance as a lending condition.

Finally, you should stay in touch with your lender throughout the process to make sure that they have everything they need from you.  Once the lender approves the loan, the closing can be scheduled, and you will be well on your way to a new home.

We are available for our clients throughout the process to review the contract, resolve any defects disclosed during the inspection, help you with any questions in your evaluation of any homeowner’s association, review the documents produced by the seller, and help you through closing.  In short, we are here to make it as enjoyable a journey as possible.

It is helpful to identify your primary goal for the sale.  Is it to obtain a certain price?  Or to sell quickly?  By discussing these with your team of advisors, you will give them a sense of the parameters that are acceptable to you.  This will make for more productive discussions and negotiations with a potential Buyer and their agents.  Also, identify what your bottom line is, and consider giving your agents some authority to negotiate on your behalf.  This way, the negotiation can proceed more smoothly and rapidly.

If your target is a certain price, keep in mind that there also is a cost to holding the property.  Property taxes, insurance, mortgage payments, Homeowner Association dues, utilities, and any other recurring costs will continue to accrue while the property is listed.  Therefore, it is possible to hold out for a certain purchase price, but ultimately end up worse off.

Keep in mind that the question of whether to accept a particular offer is both an economic question and a function of your other circumstances.

If you need to sell your current residence before you purchase another home, you limit your own mobility until closing.  On the other hand, if you do move before you sell, you will need to be able to support both the cost and the time to maintain a second property.  Life circumstances, such as jobs, children, schools, and the like also can increase the urgency of a transaction.  These factors also carry their own costs, whether in money, time, or something else.  Therefore, you should consider the value of all relevant circumstances when you evaluate the offer.

As a Seller, receiving word of an offer from a potential Buyer is a great feeling. Multiple offers can be even better news, but will require the Seller to evaluate each offer, and after any bidding, to choose one. Whether you receive one or many, there are various factors that signal the strength of an offer.

All other things equal, the strongest kind of offer is a cash purchase. This eliminates the need for mortgage financing, and the underwriting that goes with it. It also can make for a more rapid transaction, because there are fewer steps for the parties to get to closing.

Purchase price is clearly an important factor as well. There can be a tension between competing offers – one for a higher purchase price with a mortgage, and the other for a lesser amount of cash.

For offers involving mortgage financing, Sellers may want to require a potential Buyer to submit a pre-qualification for financing. Such a pre-qualification indicates that the Buyer has talked with a lender and apparently is fit for a certain level of financing. Although such a pre-approval is not binding, it can lessen the risk of accepting an offer from a Buyer who can not afford the property and who ultimately can not close.

Other indications of the relative strength of an offer include the amount of the down payment, the amount of Earnest Money tendered, and any other contingencies required by the Buyer. The down payment is evident from the amount of the mortgage required by the Buyer. A higher down payment means a lower loan-to-value ratio, or LTV, which corresponds to less risk for the lender. The total Earnest Money, after the attorney and inspection periods are completed, also communicates the level of seriousness of the Buyer. Although there is not a single correct formula, the Seller should be cautious if the amount offered by the Buyer is too low to make sense in light of the other parameters of the transaction.

Other contingencies that a Buyer requires can diminish the strength of an offer, in that they pose an additional layer of uncertainty for the Seller. This does not mean that they should always be refused. They very well may work out and the transaction may close – but they may fall apart later, leaving the Seller to re-list after time has passed.

Timing and market conditions also should be considered. Reasonable offers received quickly after listing the property, or in a down market, may have some extra intrinsic value for some Sellers.

The sales process can require a lot of choices, sometimes with limited information.  Call us if you are going to sell a property in Chicago and want to develop a strategy to get to a smooth closing.

As a Seller, you will need to choose a place to go unless you have already vacated the property.  If you plan to purchase a different property, contact a lender early on to learn the appropriate price range for your next place, and whether your purchase is contingent upon the sale of your current home.  These elements are important for planning purposes, because you might want to make the purchase contract contingent on the sale if necessary, and because you will want to make suitable arrangements for the moving and storage of your possessions during the two closings.  If you plan to rent instead, you will need to identify a suitable property and execute a lease.

Planning the move should not be overlooked.  It takes time and resources.  If you are moving from a condominium or other high-rise community, there may be moving hours, other rules, forms and fees to reserve an elevator.  Moving companies, and storage if necessary, also need to be arranged in advance.

Most real estate contracts provide for a transfer of possession at closing.  That means that you and your possessions have to be out of the premises, and that the keys have to be turned over at closing.  If you plan to retain possession after the closing for any reason, you should communicate that with both your real estate broker and your attorney, so that appropriate terms can be negotiated and put into writing.  Absent a written agreement, do not assume you can stay after the closing.

Your home is for sale, and you have it under contract, but the Buyer can not get financing.

The risk of this situation can be mitigated at the outset by obtaining from the Buyer a pre-approval from his or her lender. Sometimes, however, other factors cause a loan application to fail.

The residential real estate contracts most frequently used in Chicago contain a mortgage contingency provision. Generally, these provisions provide a certain period of time for the Buyer to obtain a loan commitment (i.e., approved financing). If the Buyer fails to do so, the contingency often provides a Seller with an option to try to arrange an alternate source of financing with certain, usually similar, terms. (Sometimes this option is changed or deleted in an earlier phase of the transaction, however, in which event Seller’s choices may be limited.)

News that financing has fallen through is not a welcome development for a Seller. At best, there will be a delay to closing. It also is possible that the transaction will not close. Unfortunately, the Seller will still be responsible for any mortgage payments, taxes, and assessments accruing while he or she owns the property – and potentially may have other plans delayed as well.

A Buyer must provide written notice to invoke the mortgage contingency. The question then is, what caused the loan application to fail? Two additional considerations are whether the Buyer has sufficient financial strength to proceed with the transaction if the loan were to issue, and whether another lender may offer more flexible lending guidelines.

If these factors come together favorably, it may be possible for the transaction to proceed with a different lender. Most contracts are drafted to provide an option rather than a requirement for a Seller to seek an alternate source of financing. Therefore, a Seller usually also can choose to simply move on, and either hold the property or re-list it for sale.

After signing a contract to buy a condominium, you should receive a stack of documents about the condominium association. The contract usually provides a short period of time to review them, and it is important to make sure that the condominium unit matches your own budget and lifestyle.

Among these documents, there should be at least a condominium declaration and bylaws, a budget, a condominium disclosure, and a set of rules and regulations, if adopted. (Some small buildings do not adopt rules. Larger associations almost certainly will have them.)

The condominium declaration, bylaws, and rules and regulations describe the facilities and governance of the condominium. It is important to make sure that you understand the any restrictions, such as with facilities, construction, decorating, noise, pets, and rental of the units. If you intend to rent the unit out within a year or two, a building may not be suitable if rentals are capped and subject to a wait list. If you are a pet owner, make sure you will not be in conflict with the building rules! Pet restrictions can vary widely – including number, weight limits, tank size for fish, and sometimes an outright ban.

The budget should tell you about the income, expenses, and reserves of the building. With a condominium, you are buying the unit itself, along with a share of the building or development as a whole. Therefore, you are buying a share of the assets – both the existing facilities and the financial reserves. You are also taking on a shared responsibility to maintain and operate the building.

The condominium disclosure, sometimes referred to as a “Section 22.1 disclosure,” should provide information about the operation of the condominium itself, such as monthly and any pending special assessments, upcoming capital projects, insurance, and any litigation. This will help to identify ongoing or potentially upcoming circumstances that may factor into your decision.

It is often said that real estate is unique. That is certainly true as far as the location and all the factors that go with it – view, air and light, building amenities, neighborhood facilities and services, and the like. It also applies to the economics and governance of a condominium unit. For example, in a high-rise building, a unit at the top of the building can have a higher ownership stake and assessments compared to a seemingly identical unit lower in the building. In some buildings in Chicago, this may almost double from the bottom to the top floors!

Ultimately, these kinds of issues involve economic decisions. Therefore, a buyer should review the condominium documents carefully to make sure that the disclosures and restrictions match his or her expectations for use and cost.

In some cases, a buyer and seller of commercial real estate which seek to enter into an agreement by which the seller will provide financing to the buyer.  These types of transactions often differ from those in which the buyer is financing the purchase on its own or with third party funds.

A blueprint for such a transaction is a form of contract known as Articles of Agreement for Deed.  The Articles will map out the major terms of the transaction, and will need to be written out and executed by the buyer and seller.

Most importantly, the Articles of Agreement for Deed will provide for a stream of payments to be made by the buyer to the seller, either monthly or in other regular periods.  These payments they begin at an initial closing, at which time possession of the premises is tendered by the seller to the buyer.  The Articles of Agreement for Deed likely will have various other provisions that the buyer must observe while holding possession of the property.

Transactions pursuant to Articles of Agreement for Deed are not traditional sales, however.  Ownership does not transfer to the buyer at the initial closing.  Instead, the buyer must complete the stream payments and any other conditions set forth in the Articles of Agreement for Deed.  When he has done so, full ownership may be obtained at a final closing.  If the buyer defaults in an obligation set forth in the Articles of Agreement for Deed, however, he may be deemed to have forfeited his interest in the property, or may be subject to any other remedies available to the seller under the Articles.

Meanwhile, despite transferring possession of the property to the buyer at the initial closing, the seller retains an interest in the property.  Therefore, unlike a traditional sale, where the seller divests both ownership and possession at the closing, he may continue to have obligations during the period the Articles of Agreement for Deed are pending.

Whether Articles of Agreement for Deed are suitable for a particular transaction depends on the nature of the transaction and the relationship of the parties.  When Articles of Agreement for Deed are appropriate to a particular transaction, it is important that they clearly reflect the intent of the parties.  Therefore, if you are considering a seller-financed installment contract, call us to make sure that the terms and the mechanics are appropriate for your deal.