Requests to Extend Closing Dates:
Buyers frequently request Sellers to extend the agreed upon closing date for real estate transactions.
In response to such a request, Seller will often agree to provide Buyer with an extension if Buyer increases Buyer’s deposit. As an alternative, Seller may want to consider agreeing to provide Buyer with an extension if Buyer pays Seller a certain sum of money. In such a case, Seller could also agree to apply the sum paid - or a portion thereof - against the purchase price if the transaction closes.
Under either alternative, if the transaction closes, the total amount of money Buyer paid and Seller received is the same, assuming in the second alternative above the parties agreed to apply the sum Buyer paid for the extension against the purchase price.
However, if the transaction does not close because of Buyer’s default, the result under each of the alternatives may not be the same. In fact, the result could be very different.
If Buyer requests Seller to extend the closing date after Buyer has removed all contingencies, and Seller agrees to extend the closing date in exchange for Buyer increasing Buyer’s deposit, in such a case, if the transaction does not close because of Buyer’s default, Seller may be entitled to recover damages caused by Buyer’s default. Often, Buyer and Seller agree to a liquidated damages provision, which provides that if the transaction does not close because of Buyer’s default, Seller shall retain Buyer’s deposit as liquidated damages. Although Seller may be entitled to damages or liquidated damages, as applicable, Seller may find that Buyer will not agree to pay those damages. As a result, Seller may be required to retain an attorney and/or take legal action to enforce Seller’s rights. Engaging in such a process can be time consuming and expensive. Moreover, once litigation ensues, Buyer may assert a myriad of reasons why Seller should not be permitted to collect damages, and depending on the facts and circumstances, some of those reasons may be valid.
However, if Buyer requests Seller to extend the closing date after Buyer has removed all contingencies, and Seller agrees to extend the closing date in exchange for Buyer paying Seller a certain sum of money, in such a case, Buyer simply tenders money to Seller for the extension. If the transaction does not close because of Buyer's default, Seller keeps the funds that Buyer paid for the extension. Notably, the issue of whether Seller is entitled to damages because of Buyer’s default is separate and distinct.