Knowing how to extend a real estate contract is great knowledge for buyers entering the marketplace, as well as sellers. A little known fact about the residential real estate resale and new construction market is approximately 10 percent of all pending transactions fall through. In a market favoring sellers, like here in Orlando, that percentage increases significantly. For instance, the 10 percent figure is applicable to a balanced market but in a seller’s market or one favoring sellers, the transaction failure rate rises to about 50 percent. One way to avoid this is to know how to extend a real estate contract.
Reasons for Contract Extensions
There are several big time mistakes first time home buyers make and these often lead to trouble in closing on schedule. A prime example is buyers incurring more debt prior to settlement day. Because lenders typically run a second credit check just a day or two prior to closing (known as a soft credit check), new debt alters the borrower’s debt-to-income ratio. This scenario causes lenders to decline final financing approval. Therefore, new financing must be obtained or the buyer must pay down or payoff debt.
One of the most important aspects of a real estate contract is the time frame that is built into it. After all, when the contract’s language says that “time is of the essence,” it means it. While time frames are important, there are a number of legitimate reasons that you might need to change them as a part of a real estate transaction. Although you probably won’t be able to do it unilaterally, the odds are very good that you can get more time if you legitimately need it. —San Francisco Gate
Another reason for delaying a closing is issues are uncovered in the home inspection. While this might not necessary lead to cancelling the contract, it can mean agreeing on certain concessions. The appraisal might not support the agreed selling price and the details need to be worked out, which is another reason for a contract extension. Sometimes, it’s just a matter of bad timing between parties and this causes a delay.
How Extend a Real Estate Contract
Typically, residential real estate purchase contracts contain many clauses which include contingencies, concessions, timelines, and more. These are legal protections and provisions for both parties involved in the transaction. And like any other legally binding document, there are stipulations. One such stipulation is an agreed closing day (usually containing certain flexibility options). Here is are some general steps to take to extend a real estate contract:
- Immediately speak with your agent. If your lender contacts you with news there’s a problem with the final financing approval or a circumstance arises, such as a death in the family, immediately speak with your real estate agent. Let him or her know the circumstances and get advice about how to best proceed.
- Contact the seller’s listing agent. Once you’ve spoken with your own real estate professional, it’s time to contact the seller’s listing agent. Let your real estate agent or broker work out the details and work with them to come to an amicable agreement with the seller. (In some instances, the delay will also benefit the seller.)
- Agree to sign an addendum or amendment. If both parties agree to extend the length of the contract and/or alter some of the terms, an addendum or amendment will need to be created for both parties to sign. Go over this document carefully to ensure it’s accurate.
- Be sure to check for a “notice to perform” clause. Be aware some real estate contracts contain a “notice to perform” stipulation. This places a responsibility on the seller to provide the buyer with a notice to go-through with the sale within a set period of time. Ask you agent to explain how this will work in your situation.
If you’d like to know more about the home buying or home selling process, please phone me at 407-616-7286, I’ll be happy to speak with you.