"Buying a Home in Illinois: What Does the Seller's Disclosure Report Tell You Before You Sign?"

Your agent sends over the seller's paperwork on a brick bungalow in Berwyn, and four of the pages are the Residential Real Property Disclosure Report. The seller has checked "yes" beside one of the statements about the basement and written in that a sump pump was replaced two summers ago. Every other line is "no," the roof included, and the listing photos show a finished family room downstairs with new carpet.

Before you sign a contract on an Illinois home, the seller has to hand you a completed Residential Real Property Disclosure Report listing the material defects the seller is actually aware of. It is not a warranty and the seller does not have to investigate anything. If the report reaches you after you sign, you have five business days to terminate the contract and get your earnest money back.

I'm Jeff Moran, a mortgage broker in Bluffton, South Carolina, originating since 1996, licensed in fifteen states, including Illinois, NMLS #483943, through C2 Financial Corporation.

Does Illinois require a seller disclosure report on every home sale?

On most of them. The rule is the Residential Real Property Disclosure Act, 765 ILCS 77, and Section 5 of the Act covers a home with one to four units, a unit in a residential co-op, or a condo.

Section 15 lists the sales that are exempt from the Act. The list includes a transfer under a court order such as probate or a divorce judgment, and a transfer from the estate of someone who has died. It also includes a transfer to a spouse or a direct blood relative such as a child or a parent. A transfer to or from a governmental body and a newly constructed home that has never been occupied are on it too, so on an estate sale or a brand-new build, please ask your attorney whether the report is owed.

The report has to reach you before you sign the contract

Section 20 says the seller has to complete every item in the disclosure report described in Section 35, and has to deliver it to you before you sign the contract. So you get it while the price, the repairs you ask for and the inspection scope are still yours to write.

Illinois adds two more windows right behind the signature. Most residential contracts here carry a five-business-day attorney review period that starts the next business day after both sides sign, and the inspection contingency runs beside it, as the page on buying a home in the Peoria area explains. The disclosure report is the only one of the three that arrives before the price is agreed.

Two definitions on the form: "aware" and "material defect"

The form in Section 35 defines both words. "Aware" means the seller actually knows about the problem, without having had to go looking for it. A "material defect" is a problem big enough to lower the home's value, or to make the home unsafe or unhealthy for the people who will live there.

Section 25 says the same thing about when the seller can be held responsible. The seller only has to tell you about problems they actually know about, and does not have to go looking for any. A seller is not responsible for an error or omission they did not know about.

So a "no" means the seller is not aware of a problem. A seller who never went into the attic can truthfully check "no" beside the statement about the roof. A page full of "no" tells you the seller did not know of a problem, and it does not tell you the home has none. A "yes" is the more useful answer, because the seller has to explain it.

Does an Illinois disclosure report count as a warranty or an inspection?

No on both. The form in Section 35 says the disclosures "shall not be deemed warranties of any kind by the seller or any person representing any party in this transaction." The same notice says you and the seller can still agree to sell the home "as is" if you both want to. And the seller did not have to look at anything before filling in the form, so your inspection is where somebody actually checks the home. Please give your inspector the report, so the inspector can check the items the seller said yes to and still look at everything the seller said no to.

Section 45 adds that other Illinois laws and court decisions can still require the seller to tell you things this form does not ask about.

One other seller disclosure usually arrives in the same packet. The Illinois radon documents come from a separate law, the Radon Awareness Act. The state lending database is a different thing altogether: it is a step on the loan side, in four counties, and it comes from Article 3 of this same Act. The post on the lending database step explains how it works.

What happens if the disclosure report arrives after I sign the contract?

You have five business days after receiving the report to terminate. Section 40 says that if the report discloses a material defect and is delivered after all parties have signed, in violation of Section 20, you may terminate the contract. You can cancel without owing the seller anything, and your earnest money and any down payment come back to you. Subsection (c) says that right ends once the sale has closed and the deed is recorded in your name, so after that you can no longer back out under this section.

Some older summaries online still say three business days. The current Section 40 says five, and your attorney can tell you exactly how the notice to terminate has to be given.

Section 55 covers a seller who never delivers the report at all. If the seller fails or refuses to provide it before the sale closes, you may terminate the contract.

What happens if the seller corrects the report before closing?

The seller has to tell you. Under Section 30, a seller who becomes aware before closing of an error, inaccuracy or omission in the delivered report has to give you a written update.

Section 40(b) spells out your rights on an update. You can back out over something in an update only in three cases:

1. The seller already knew about the problem when they signed the original report.
2. The problem cannot be repaired before closing.
3. The problem can be repaired, and the seller says no, or does not agree in writing within five business days to repair it.

Please send me a copy of the written update, all pages, the same day it arrives, because it can change your appraisal and the dates in your contract.

If the seller knew and did not tell you

Section 55 says a seller who knowingly violates the Act, or who discloses information the seller knows to be false, is liable for actual damages and court costs. The court may award reasonable attorney's fees to whichever side wins. Section 60 sets the clock at one year from the earliest of possession, occupancy, or the recording of the deed in your name.

Please keep the original report and every update, with the date each one reached you.

Your inspection, your appraisal and your loan after a "yes" on the report

Your inspection. Your inspector works for you, and the inspection report is written for you rather than for the lender, as the post on who actually calls for repairs, the appraiser or the inspector, explains.

Your appraisal. The appraiser is forming an opinion of value for the lender. On an FHA loan the appraiser has a second job. HUD Handbook 4000.1 II.A.3.a says the appraiser checks whether the home meets FHA's minimum standards for being safe, sound and secure. If something does not comply, the appraiser must note the repairs needed and the estimated cost of the repair, and the lender may approve the property only after confirming those defects have been corrected. So if you are using FHA financing, please tell me what the report says before the appraisal is ordered.

Your loan. Nothing on the report changes your income, your credit or your debts. The way a problem on it reaches your loan is through the price, a seller credit, or how much cash you have left after closing. A seller credit toward your costs is what the agencies call an interested party contribution. Fannie Mae's B3-4.1-02 says that kind of credit must be equal to or less than your closing costs, and any amount beyond them is deducted from the sales price. HUD Handbook 4000.1 II.A.4.d calls a seller contribution above your actual closing costs, prepaid items and discount points an inducement to purchase, FHA's term for a seller paying more than your costs.

On an FHA loan, HUD Handbook 4000.1 II.A.2.a takes any inducement off the purchase price before the loan amount is figured, so the extra money lowers the price your loan is based on instead of coming to you. That is why the choice between a credit on your cash to close and a credit on your rate is worth running before you ask for one.

And if you pay for the work yourself after closing, it comes out of what Freddie Mac's 5501.2 calls reserves, the assets remaining after the mortgage closing.

The steps, in order, for an Illinois purchase

1. You'll want to ask the seller's agent for the completed disclosure report before you write, in writing, so the delivery date is on the record.
2. Please read every "yes" with its explanation, and every "no" with Section 25 in mind.
3. You'll want to send me the two or three answers that could cost money before the offer is written.
4. Please give the report to your inspector and book the inspection early inside the contingency, so a finding leaves room to negotiate.
5. If the report arrives after you sign, or a written update arrives before closing, please call your attorney the same day. The five business days in Section 40 count from the day the report reaches you.

Two ways this goes wrong

The report gets read as a clean bill of health. A page of "no" answers means the seller is not aware of a problem.

The report gets read after the offer. Section 20 has the report come before the contract so that anything on it can be part of the price you offer. A roof repair you learn about after the price is agreed becomes a request to a seller who already has your number.

An illustration, with made-up numbers

Numbers below are invented to show the mechanism.

Say you are buying a 1960s ranch in Belleville at $265,000 with an FHA loan. The report arrives before you write, and the seller has checked "yes" on the statement about the roof, explaining that a section over the garage was patched after a storm three years ago.

You send me the report, and because the loan is FHA, I tell you that a roof the appraiser cannot verify as sound can come back as a required repair with an estimated repair cost. You and your agent write at $258,000, name the roof as the reason, and the seller meets you there. Your loan is written on $258,000 from the start, which lowers the down payment and the loan amount together.

In the second version, one thing changes: the seller holds at $265,000 and offers a $7,000 credit instead, and your closing costs on this file come to about $6,200. Under the FHA rules above, the $800 above your actual costs does not come to you. FHA takes it off the price the loan is based on, so your loan is figured on $264,200. That gap is the reason to run the arithmetic before you choose between a price cut and a credit.

Your next steps

If you are shopping in Illinois, the rate tool is here when you want to see it with your own numbers. No credit pull, no account, nobody calls you.

The Illinois page covers the rest of what is different about closing here, and pre-approval in Illinois is where the qualifying work starts.

Nothing here is a loan approval, a denial, a commitment to lend, or legal advice, and the questions on a particular contract belong to your Illinois attorney.

Common questions

Does the seller have to give me the disclosure report before I sign a contract in Illinois?

Yes. Section 20 of the Residential Real Property Disclosure Act, 765 ILCS 77/20, says the seller has to complete all items in the report and deliver it to you before you sign the contract. The Act covers a home with one to four units, a unit in a residential co-op, or a condo, and Section 15 exempts certain sellers, such as an estate or a builder of a never-occupied home.

How long do I have to back out if the Illinois disclosure report arrives late?

Five business days from the day you receive it, under 765 ILCS 77/40(a), if the report discloses a material defect and was delivered after all parties signed the contract. You can cancel without owing the seller anything, and your earnest money and any down payment come back to you. The right ends once the sale has closed and the deed is recorded in your name.

Can I terminate if the Illinois seller sends a supplemental disclosure before closing?

Only in three situations, under 765 ILCS 77/40(b). The first is that the seller already knew about the problem when they signed the original report. The second is that the problem cannot be repaired before closing. The third is that it can be repaired, and the seller does not agree in writing within five business days to repair it. Section 30 is what requires the supplement in the first place.

Is the Illinois seller disclosure a warranty on the home?

No. The form in 765 ILCS 77/35 says the disclosures "shall not be deemed warranties of any kind by the seller or any person representing any party in this transaction." You and the seller can still agree to an "as is" sale if you both want to. Section 25 says the seller only has to tell you about problems they actually know about, and does not have to go looking for any.

What can I do if an Illinois seller knew about a defect and left it off the report?

Section 55, 765 ILCS 77/55, says a seller who knowingly violates the Act, or who discloses information the seller knows to be false, is liable for actual damages and court costs. The court may award reasonable attorney's fees to whichever side wins. Under Section 60, you have one year to file suit, counted from the earliest of the day you take possession, the day you move in, or the day the deed is recorded in your name. That is a claim for an Illinois attorney.