Failing to complete a real estate transaction on the agreed-upon closing date can hurt a deal. A seller or buyer may hold up an escrow closing by failing to perform his contract duties in a timely manner; however, because a buyer usually has the longer to-do list, he is more likely to miss the escrow closing date than a seller. The contract usually includes clauses and terms which dictate the rules and penalties pertaining to closing.
Two to four weeks is a conservative time frame for closing on a home. In general, only buyers with liquid reserves -- cash offers -- or well-qualified buyers with large down payments of at least 20 percent and a head-start on their loan approval meet this short deadline for closing. To be safe, buyers and their agents typically write offers with expected closing dates 30 days to 45 days after seller acceptance of the offer. When obtaining certain types of financing, such as secondary loans and down payment assistance programs, the buyer may require 60 days or more to close.
Various issues may arise during the real estate transaction and loan underwriting which may cause a buyer to miss his closing date. Certain real estate markets, usually characterized by low interest rates and a high volume of buyers, contribute to extensive lender turn times and late closings. A lender's need to analyze buyer credit, income and assets with a fine-toothed comb also may delay closing. Buyer errors, such as racking up new debt or failing to gather the needed down payment and closing cost funds, can do more than extend closing. They can completely derail it if he no longer qualifies for financing.
Missing the closing date can jeopardize a deal. The sales contract, which dictates the closing date, also stipulates that a seller can cancel the transaction if the buyer fails to perform his duties within allotted time frames. Closing is one such responsibility which carries the biggest consequence when not carried out. A seller loses time on the market and often spends a lot of time and resources in trying to meet his own contract duties in time, such as making repairs and providing the buyer with the necessary paperwork. When the seller relies on the sale proceeds to buy another home, a delayed closing can also cause him to lose that deal.
Before missing the closing deadline, a buyer can request an extension from the seller. This typically involves a formal contract addendum which states a new closing date to which the seller voluntarily agrees. A seller may impose monetary penalties for a missed closing date, such as a fee for each day the transaction is delayed, known as "per diem" charges. The seller may also pursue the buyer for damages if the buyer's failure to close on time causes cancellation of the transaction. Liquidated damages are typically paid in the form of a surrendered earnest money deposit equal to 1 percent of the purchase price.
- Mortgage News Daily: Average Time From Application To Closing Rises To 48 Days
- MSN: Need to Rush Your Home Purchase? Here's How
- Consumer Financial Protection Bureau. "What Fees or Charges Are Paid When Closing on a Mortgage and Who Pays Them?" Accessed April 5, 2020.
- Department of Housing and Urban Development. "Let FHA Loans Help You." Accessed April 5, 2020.
- Department of Veterans Affairs. "Ten Things Most Veterans Don't Know About V.A. Loans." Accessed April 5, 2020.
- Consumer Action. "You Can Buy a Home," Page 1. Accessed April 5, 2020.
- Consumer Financial Protection Bureau. "Is There Such a Thing as a No-Cost or No-Closing Loan or Refinancing? Accessed April 5, 2020.
- U.S. News and World Report. "How Do Seller Concessions Work?" Accessed April 5, 2020.
- Nolo. "Escrow and Your Role as Home Seller." Accessed April 5, 2020.
Karina C. Hernandez is a real estate agent in San Diego. She has covered housing and personal finance topics for multiple internet channels over the past 10 years. Karina has a B.A. in English from UCLA and has written for eHow, sfGate, the nest, Quicken, TurboTax, RE/Max, Zacks and Opposing Views.