Buyers frequently request Sellers to extend the agreed upon closing date for real estate transactions.
In response to such a request, the Seller will often agree to provide the Buyer with an extension if the Buyer increases the Buyer’s deposit. Let’s call this Response #1. As an alternative, the Seller may want to consider agreeing to provide the Buyer with an extension only if the Buyer directly pays the Seller a certain sum of money for the extension. Let’s call this Response #2. In connection with Response #2, the Seller could also agree to apply the sum paid by the Buyer – or a portion thereof – against the purchase price if the transaction closes.
If the parties agree to Response #2, and also agree that the full sum the Buyer paid to the Seller for the extension will be applied against the purchase price if the transaction closes, in such a case, if the transaction closes, then the outcome under Response #2 will be no different than the outcome under Response #1. Seller will receive the agreed upon purchase price for the real estate, and Buyer will receive title to the real estate. However, under the scenario above, if the transaction does not close because of the Buyer’s default, then the outcome under Response #1 and Response #2 could be very different.
Buyer requests Seller to extend the closing date after Buyer has removed all contingencies, and in response, Seller agrees to extend the closing date if Buyer increases Buyer’s deposit. (Response #1) The transaction does not close because of Buyer’s default, and as a result, Seller seeks to recover recover damages due to Buyer’s default. Often, Buyer and Seller will agree to a liquidated damages provision that generally 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, Seller may find that Buyer will not pay those damages (e.g. Buyer will not permit escrow to release Buyer’s deposit to Seller). Therefore, 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, Buyer may assert a myriad of reasons why Seller should not be permitted to collect the damages claimed, and depending on the facts and circumstances, some or all of those reasons may be valid.
However, if Seller had agreed to extend the closing date only if Buyer directly paid Seller a certain sum of money for the extension (Response #2), then Seller would have been in possession of that sum. More significantly, if the transaction did not close because of Buyer’s default, Seller would have been entitled to retain that sum because Buyer gave it to Seller in exchange for the extension. Notably, the issue of whether Seller is entitled to damages because of Buyer’s default is separate and distinct.