Sellers, penalties for missing closing date?

Question

Have you ever tried to add a $ penalty per day for delaying a closing date in a sales contract?
I know many of the delays are due to lender issues, but why should I bear the brunt of that cost?  I'd like to give the buyer some incentive to push his people a little harder.

J Scott · Answer

If they use my lender, there is no penalty for financing delays (though there aren't delays with my broker, so it doesn't matter).

If they choose not to use my broker, after the contact date of close, they get one 7-day unilateral extension (per standard GA contact).  After that week, agent loses their bonus and we go with one of two tracks:

1. Buyer needs to put up entire downpayment as non-refundable EM and we extend for 1-2 more weeks; or

2. We implement a kick-out clause where we start remarketing the property and if we find another buyer prior to the buyer being able to close, we can go with the new buyer and keep the original buyer's EM.

We go with #1 if we think they are the best offer we'll reasonably get and we'll go with #2 if we think we left money on the table with the original deal.

Justin S. · Answer

I've been successful in imposing $100/day late penalties on some properties.  But for FHA buyers, it is a tough pill to swallow.  Usually the agent pays for it by taking it out of their commission.

If they use my preferred lender though, I do not impose anything.  But my lender has never been late.

Jonathan Newsome · Answer

@J Scott I know this post is a bit dated, but would you mind sharing how you would word your “kick out clause”?

Will Barnard · Answer

Vanessa makes some valid points. To add to it, no matter which area you are in, you also need to identify your market conditions. If it is a strong buyers market, it will likely be more difficult to get buyers to agree to a per diem penalty. In a sellers market, it will likely be a lot easier.
Just as with price or anything else, you can only get what the market will bear and per diem's will likely not be an exception to that rule.

Vanessa Brown · Answer

I've notice in the replies that you have excellent representation from across the country...but not from your market area. Keep in mind that you want to check with people who are in your area as well. As per example J. Scott stated that Ga has a standard 7 day extension...while in Md contracts literally drop dead on closing day without a written extension. Also some places have more buyers (and more savvy buyers) than others. In some places delay penalties may simply be looked at as the cost of business while in others buyers realize that there are plenty of good deals out there and they'll shop around.

I don't see any mention of your days to closing. In my area I deal with a lot of historical properties. Comps and appraisals can be a nightmare. On 30 days to close you will almost always go over by a day or two, but with 45 to close they're usually early. If you're going over on "several" sales maybe the days to closing is not reasonable from the offset.

J Scott · Answer

Justin -

Will send it over by PM when I get back to my computer.

Will Barnard · Answer

Eric,
I would love to add a per diem charge for late clsoings into all my contracts, the problem is, here in CA, most buyers and their agents will not accept it and you stand the chance of losing that buyer. Every area is different as are each buyer and seller, so if you can get that into your contracts without risk of losing buyers, more power to you!

Jason has a great format in that he offers up his lender as an option to avoid any penalties. This is more difficult to do here in CA too as many of the buyers already have pre-existing relationships with lenders and are not willing to go with a new and strange to them lender regardless of any benefits you state. I wish it were not that way.

I have a deal that is due to close this Friday and the lender is late (buyer's lender). I am pissed as I gave them 35 day escrow rather than the 30 upfront and here they are now needing 42+ Quite frustrating, but I do hold some cards. I can issue a NTP (Notice to perform) and cancel escrow and keep their $35k EMD if I choose as they have released all contingencies at this point. I can demand a per diem now or threaten to cancel, or I can eat it. Not sure which way I am going at the moment but have an idea.

Point to this long response, IF you can get per diem's into your contracts upfront without risk of losing buyers, do it!

Steve Babiak · Answer

I had a house sell recently where the buyer had retained an attorney to negotiate the terms of the agreement.  I insisted on such a clause, and the penalty was $100 per day - and the attorney accepted this clause.  Not my problem if the buyer picks a lender that can't get to the table; not my problem if the buyer isn't getting paperwork together fast enough; etc.  In this particular case, the closing did happen as scheduled, but these things are intended because we like to say "time is of the essence".

Eric M. · Answer

wow, I have been being way too soft on my buyers.  I have been getting dragged all over the place with delays.  I would guess and average of 6 or 8 days on my last several sales.
I was only thinking $50 a day or so.  I'll definitely add it in to my next sale.

Thanks

Justin S. · Answer

J

Are you willing to share your verbiage on this?

Sellers, penalties for missing closing date?

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