What Can a Seller do if the Buyer Cannot Close Escrow on Time?

Westcoe Realtors, Riverside California…This may be hard to fathom, but rarely does an escrow close on time. Shocking, I know…but when you are relying on approximately 20 different people/organizations to do their job in a timely fashion, most of the time someone drops the ball and the escrow closing is delayed.  Since about 90% of the time the delay is caused by the buyers side of the equation (at least in a “regular” sale escrow….short sales are a different story), the question of the day is this:  What can a seller do?

Well, the first recommendation we have is for the seller to take a deep breath, calm down, and if the delay looks to be short (a week or less), then just roll with the situation and close it when you can.  Yes, we know you have plans, vans, and deadlines to meet, but such is life in the real estate fast lane.  Some problems are simply unavoidable, and while your agent will attempt to control as much as they can, even we are not the masters of our entire real estate universe…so when some low-level person in a far-away lenders office sits on your paperwork for a few extra days because their boyfriend/girlfriend dumped them for the roommate, really…what can we do?

However, if the delay looks to be longer than a week or so, does the seller have any type of remedy for the costs the delay will cause the seller?  Yes…sort of.

Let us assume that the delay will be 2 weeks or so…maybe longer.  Again, assuming the reason for the delay rests with the buyers side of the transaction (usually the new loan is delayed for some reason), then it is not unreasonable for the seller to ask the buyer for some type of compensation…and this compensation usually comes in two forms.

The first form is that in exchange for the agreement to extend the escrow for the 2-3 weeks needed, the buyer agrees to release some of the money on deposit directly to the seller as “non-refundable”…which means that if the buyer fails to close the escrow for any reason, the money is the sellers, and is “non-refundable”.  This type of compensation is usually used when the ultimate closing may be in doubt, because at least the seller now has some of the buyers money to compensate them if the escrow does fallout.  If the escrow does indeed close during the extended 2-3 weeks, then the seller has received no additional money for the delay, but they did have some peace of mind with the buyer’s money in their wallet.

The second form of compensation is generally used when the closing is not in doubt, just the time frame.  Here, the seller can ask for a “per diem”.  This “per diem” is usually a daily charge to the buyer for getting the extension, and is generally figured at 1/30th of the sellers monthly payment…or it can just be some figure pulled out of the air that all parties agree to is fair.  In any event, this money is added to the buyers cost of purchase, and paid by the buyer at the close of escrow.  The good news here is that the seller is actually getting some extra money for the delay…but if the escrow fails to close, then the seller gets nothing since the “per diem” was based upon a close of escrow that has not taken place.

There is also a third option, which is a combination of the release of deposit and the “per diem”.  This can work too since it is the best of both worlds…

…BUT ALL OF THE ABOVE COMES WITH A DISCLAIMER…and that is this:

Don’t get greedy.  Every situation is different, and let your real estate agent be your guide…but it is highly possible that the delay, while caused by the buyers side of the transaction, is not really the buyer’s fault either.  Sometimes, “you-know-what” happens and the buyer is just as frustrated as you are…and if the buyer feels the seller is simply not being reasonable, or trying to get extra money at the buyers expense, then the entire transaction can blow-up over something very silly.  Be careful here, and tread lightly, because if you lose focus on the big picture by getting tense over the little picture, it could be far more costly than the inconvenience of a 10 or so delay.

In the end, let your common sense be your guide…and when in doubt, understand you will get far more with sugar than you will with a stick.

Take care, and as always, let us know if you have a real estate issue you would like to see addressed here.  Thanks for reading.