Don't expect real estate deal to close on time

Home Sale Hindsight

By Inman News Feed
Add Comment Add Comment | Comments: 0 | Posted Jun. 25, 2010

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Home Sale Hindsight

Tara-Nicholle Nelson
Inman News

Q: Is there any clause that can force the seller to pay damages if he fails to close on the agreed date without any prior notification? My closing was supposed to be on a particular date. But when I requested confirmation, the seller didn't respond. I was waiting for any reply. The seller's attorney didn't even pick up the phone calls from my lender or title agency.

After seven days, my attorney sent documents to the seller. The seller did respond seven days after that when I said that I was going to close the deal if he didn't respond by the next day.

After 14 days of stress and mental harassment, the seller agreed to close on a date 14 days after the closing date in the contract! He didn't respond to any of the mail I sent him through the entire transaction, including a letter explaining the damages he was causing me. Is there anything I can do against him? --Harassed buyer, New Jersey

A: I don't know what the New Jersey state real estate contract form says, but it's highly unlikely that it contains a clause under which you could hold the seller liable for closing two weeks late. The reality is that a close of escrow date that is specified in a real estate contract is generally thought of as an approximate date, despite the fact that most real estate sales contracts specify that "time is of the essence."

As long as both parties still want to close escrow at the time both are ready, willing and able to do so, and so long as the transaction does actually close escrow, it's doubtful that there's anything in the contract that would award damages to the buyer for a two-week-late close.

Now to the inevitable exceptions. If you and the seller agreed -- even now -- that he would pay a late fee for closing beyond the revised close of escrow (COE) date, that would be different.

And, in fact, on most sales of foreclosed homes, or REO properties (bank-owned, also known as "real estate-owned"), the bank/seller actually puts a clause in the sale contract up front that mandates that the buyer will be liable for a per diem (per day) late fee in the range of $100 for every day the buyer is late closing.

The clause is not reciprocal, and does not apply to the bank/seller in the event the transaction does not close on time.

(Of course, in the vast majority of real estate sales, a late close is due to a buyer's delays, not delays on the seller's end.) Even in REO transactions, the bank doesn't generally enforce the late-fee clause for a tardy close of a few days or less -- it's often enforced only after a long delay in closing.

If time truly, truly was of the essence to the point that you would experience significant damages from a two-week delay in closing, the time to negotiate a damages clause for a late close of escrow would have been when you negotiated the original purchase contract.

That would both have secured your rights to some sort of penalty/compensation for a delay and, even better, would have given a major boost to the chances that the seller would have put much more effort into an on-time close.

Of course, the seller might not have been willing to agree to such a term. In any event, the 100 percent surefire way to protect your interests up front would have been to ask your agent or attorney how precise the contract closing date was, and build as much flexibility into your moving plans as possible to avoid experiencing any damages from a late close of escrow.

I have advised many a homebuyer to delay giving their landlord a 30-day notice as long as possible, because close of escrow dates are slippery on today's market, more than ever.

Tara-Nicholle Nelson is author of "The Savvy Woman's Homebuying Handbook" and "Trillion Dollar Women: Use Your Power to Make Buying and Remodeling Decisions." Tara is also the Consumer Ambassador and Educator for real estate listings search site Trulia.com. Ask her a real estate question online or visit her website, www.rethinkrealestate.com.

                                                   
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