Don't completely panic and expect the worst if the buyer asks for an extension on the closing date. Read on to learn why it's not necessarily the end of the world and how you can make the best of a less-than-ideal situation.
You're so close. The closing date for your home is in sight and you're itching to finally close the sale. But, then you hear those dreaded words from your agent: “The buyer wants to extend the closing date.”
Don't worry, it's not karma finally coming for you. As frustrating as delaying the closing date can be, it's not uncommon for a majority of home sales to stumble right at the finish line with the buyer asking for a little more time.
And as anxious as you might be to close the sale, when the buyer asks for additional time before closing, it's not necessarily all doom and gloom. So what should you do when a buyer wants to extend the closing date? Fortunately, there are a few routes you can take that work to your advantage and result in the best outcome for both you and the buyer.
If you work with the right real estate agent, they can help you weigh all your options. But to get you started, here's what you need to know.
Why the Buyer Would Want to Extend the Closing Date
Most of the time, the buyer doesn't have nefarious reasons for wanting to extend the closing date. Rather, the main reason a buyer typically needs more time is due to an honest issue with their lender in receiving loan approval.
There's a lot of verification processes that happen in the course of loan approval that can cause delays, from underwriters falling behind to the home inspection revealing major issues that stalls lender approval.
Delays can also be a result of the buyer's home not selling on time. They need the sale to go through before they have enough funds to purchase your home. No matter the reason, you'll want to use your best judgment on which action will give you the optimal result moving forward.
Grant an Extension
One action you can take is relatively simple: grant the buyer an extension, no strings attached. Your real estate agent can negotiate a new closing date that generally will add an additional 10 to 30 days to the closing date, giving the buyer more time to tie up their loose ends.
While the entire situation is frustrating, generally it's to your advantage to keep the sale alive. By extending the closing date you'll be saving yourself the hassle of putting your home back on the market, finding a new buyer, and going through the entire selling process again.
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Negotiate a Per Diem Penalty
Another option is to grant the buyer an extension but with the contingency of a per diem penalty. A per diem penalty is a fee charged to the buyer for both the inconvenience of delaying the closing and to help cover the additional mortgage, tax, and insurance payments the seller still needs to make as a result of the postponed date.
Typically, the per diem penalty adds up to one-thirtieth of your monthly housing expenses or you can ask the buyer for the total amount in interest you would have earned on the sale if the closing had happened on time.
Add a Time of the Essence Clause
Unfortunately, there's no limit on the number of times a buyer can ask for an extension on the closing date. And if your buyer continues to ask for extension after extension, your patience may reach the end of its rope.
In this scenario, if you're still hoping to go through with the sale, you can give the buyer one last chance to get their things in order and grant an extension that includes a time of the essence clause.
While it may seem like you're resorting to theatrics by using a clause called time of the essence, this contingency creates a hard deadline for the buyer. With a time of the essence clause, both you and the buyer decide on a hard closing date and if the buyer doesn't meet this deadline, the seller can walk away from the sale.
Back Out of the Sale
Again, while usually it's in your best interest to follow through and do everything you can to close the sale, sometimes, dealing with an unorganized and shady buyer isn't worth the time and energy.
Depending on your contract, you may have to grant at least one extension before you're able to back out of the sale. If your buyer fails to complete their contingencies by closing, you can kill the deal and put your home back on the market to hopefully find a better buyer and higher offer on your home.
And as a bonus, you may also be entitled to the buyer's earnest money deposit as the buyer broke the agreements of your contract to close on time.