3.1 Residential Real Property Disclosure

The Residential Real Property Disclosure Act

Illinois sellers must complete the Residential Real Property Disclosure Report under the Residential Real Property Disclosure Act, codified at 765 ILCS 77. The Act is a disclosure statute, not a warranty statute: the seller reveals what they actually know, and the buyer relies on that knowledge plus their own inspection. The exam tests scope, timing, the good-faith standard, and exemptions heavily.

What Counts as "Residential Real Property"

The Act covers real property improved with one to four residential dwelling units, plus individual condominium and cooperative units. A common exam trap is to extend it to vacant land or large multifamily buildings — it does not reach either.

The 24-Item Form

The statutory report lists 24 numbered questions the seller answers "yes," "no," or "not applicable." A 2022 amendment effective 2023 added the 24th item asking whether the property is insured against flood damage, reflecting Illinois's expanded flood-risk focus. Items also cover boundary/title issues, structural and mechanical defects, water intrusion, and environmental hazards.

Timing, the Good-Faith Standard, and Exemptions

Delivery Before Contract

The completed report must be delivered to the prospective buyer before the buyer signs the purchase contract (statutorily, before the buyer is obligated under any contract). If the seller delivers it after the buyer signs, the buyer gains a statutory right to terminate the contract before closing. The exam answer is consistently "before the buyer is bound" — do not select "at closing" or "after inspection."

The Good-Faith Knowledge Standard

A seller completes the form in good faith based on actual knowledge. The seller is not an inspector or expert.

Remedy and Penalty

If a seller knowingly violates the Act or files a false report, the buyer may recover actual damages plus court costs and reasonable attorney's fees (765 ILCS 77/55). For licensees, a knowing misrepresentation is separately disciplinable by the Illinois Department of Financial and Professional Regulation (IDFPR).

Exempt Transfers

• Foreclosure sales and deeds in lieu of foreclosure
• Transfers by a fiduciary in probate, trust, or estate administration
• Court-ordered transfers (divorce, bankruptcy, eminent domain)
• New construction never occupied (builder's first sale)
• Transfers between co-owners, or by a seller who never occupied and never managed the unit

Worked scenario: A bank reselling a foreclosed condo lists with a broker. The buyer demands a completed disclosure report. The bank is exempt because it took title through foreclosure and never occupied the unit — but the broker should still disclose any latent material defect they personally know of, since broker disclosure duties under the License Act are independent of the seller's statutory exemption.

Distinguishing the Seller's Form From the Broker's Duty

New licensees often conflate two separate disclosure obligations, and the exam exploits the confusion. The seller's statutory report under 765 ILCS 77 is the seller's own representation. The licensee's duty to deal honestly and disclose known latent material defects to a customer flows from the Real Estate License Act of 2000 and from agency law. A broker who personally knows a basement floods every spring cannot stay silent just because the seller checked "no" — knowing concealment by the licensee is independently disciplinable by IDFPR.

What Is a "Material" Defect?

A defect is material if a reasonable buyer would consider it important in deciding to buy or in setting a price. Latent (hidden) defects matter most because the buyer cannot discover them through ordinary inspection.

Stigmatized-Property Rules

Illinois law (765 ILCS 77/55 and related provisions) provides that certain facts are not material defects a seller must disclose: that a death (including by suicide or natural causes) or a felony occurred on the property, or that an occupant was diagnosed with HIV or another non-transmissible-through-housing condition. A licensee may decline to answer such questions, but must not knowingly make a false statement if asked directly.

Common trap: Failing to disclose a known recurring flooding problem is a violation; declining to volunteer that a prior owner died peacefully in the home is not. Distinguish stigma from physical defect. The 24-item report focuses on the physical and legal condition of the property, not its social history, which is why memorizing the form's categories — water intrusion, structural, mechanical, environmental, and title/site — is the most reliable way to answer disclosure questions on the exam.