You’ve patiently waited for closing day to arrive so that you can proceed with your plans to move, but the home buyer missed the closing date. What does that mean for you as the home seller, and how does that impact the successful completion of the sale?
- What is a closing date?
- Can closing day be completed early?
- What happens if the buyer misses closing day?
- What can cause a buyer to miss closing day?
- What happens when the buyer is delayed?
- What is a time is of the essence clause?
- What is a fixed closing date?
- Should I end the deal or extend the closing date?
- What is a Per Diem Penalty?
- How much is a Per Diem Penalty?
What is a closing date?
When a purchase agreement is created, the home buyer makes a request for the exact closing date of the sale, and a closing day is established. The closing date is typically 30-45 days from the date the offer is accepted.
Can closing day be completed early?
In order for closing to be completed before the set date, all parties must agree in writing and all the contingencies must be met successfully.
What happens if the buyer misses closing day?
Unfortunately, there are times when a buyer may miss the closing on the property. If this happens, all parties must be notified in writing that the closing date will not happen as planned.
What can cause a buyer to miss closing day?
Before the property closing can happen, most buyers need to satisfy certain contingencies. Typical contingencies include mortgage loan details and home inspections.
Last minute loan issues can arise that cause delays. Home inspections can sometimes uncover major issues that need attention, and this can cause the buyer to miss the set closing date.
What happens when the buyer is delayed?
Although it’s frustrating, your goal in this situation is to keep the sale from falling off the table and creating a need for you to start all over from the beginning. In order to accomplish this, it’s best to allow an extension to all parties involved.
Talk with your real estate agent to discuss which options are available to you when the closing date is missed. Even when you feel angry or frustrated, try to remain objective and move forward.
What is a time is of the essence clause?
Some contracts have a time of the essence clause that is meant to create a definitive date for which the closing must be completed. If this date is delayed for any reason, the seller or the buyer can decide to end the deal and move forward.
If the contract calls for a standard home inspection and the inspection comes back with a report of major problems, the buyer may ask you to fix the problems found in the inspection. You may choose to follow through and complete the repairs.
Once repairs are completed, a certificate of occupancy may be needed for everything to move forward, but what happens if the certificate does not arrive in time for the closing date? The buyer may decide to change his mind about the sale and walk away from the deal.
If this happens, there are no repercussions for the buyer even though you did everything within your power to make things right for the buyer. The deal falls through due to that one clause in the contract and you may even face damages if it’s considered that you are in default.
What is a fixed closing date?
A fixed closing date is different from time of the essence closing dates. With a fixed closing date, case law and convention in the state determines that happens when the buyer misses the closing date.
Keep in mind that reasonable is not a concrete term here, and what one person considers reasonable may be far from reasonable to another. In most cases, the buyer is given around 30 days to make good on the closing of the property.
Should I end the deal or extend the closing date?
Out of frustration, you may be tempted to end the deal that’s been agreed upon but doing this is a serious thing that should not be taken lightly. If you end the deal, it could cost you money from the sale, the time you spent on the sale to this point, and it could cost you a buyer.
If you decide to end the deal, you’ll have to go through re-listing the property and start the home selling process all over from the beginning. This could become especially problematic if you’re trying to buy a house while selling your current house.
Ending the deal with the buyer of your current property can cause a delay with the home you are purchasing. This could place you in a situation that mirrors the one you are dealing with as a seller and cause your home buying deal to fall through.
If the buyer’s mortgage lender is slowed down due to delayed paperwork that is beyond the control of the buyer, you may want to extend the date and save the deal. In many cases, the buyer just needs a bit more time to get to the closing table and move forward.
Once the extension is granted, you will most likely find that the deal closes just as it should. Having a little patience in these situations can pay off in the long run.
You can protect yourself against needing to do this repeatedly by making the new date a time of essence clause if you fear that may happen. This way, if the buyer misses the closing date again, they will be liable, and you can cancel the deal.
What is a Per Diem Penalty?
If you cancel the contract, you may be able to keep the buyer’s earnest deposit, but not always. Earnest money is tricky, and it boils down to what is in the contract.
The contract may impose additional financial penalties on the defaulting buyer, so you want to read it carefully to see what you are entitled to if things are delayed.
Extending the contract gives you greater scope for negotiating a penalty fee. Most sellers ask for a “per diem” payment.
How much is a Per Diem Penalty?
The per diem penalty can be set in the contract or figured with the use of a formula. The per diem rate is a percentage of the seller’s monthly housing expenses and is designed to cover additional mortgage costs, property taxes, and insurance costs that are needed due to the rescheduling of the closing date.
Whether you choose to add a daily penalty or a time of the essence clause, your aim is to get the buyer over the finishing line as soon as possible. The penalty should not be so high as to make the buyer walk away from the contract or too low that you are out of pocket.
If the buyer has a good reason for missing the closing date, you may want to work with them to save the deal and move forward as quickly as possible. You’ll be able to secure additional funds to cover costs incurred due to this delay.
Your real estate agent will make sure that you understand the reasons for the delay and give you the best advice of contract details and extensions that are possible. They will be with you every step of the way with a goal of completing the sale successfully and in a timely manner.