A closing date extension addendum is a legally binding agreement that extends the closing date of a residential property. This form is most commonly utilized for a Real Estate transaction, inclusive of both residential and commercial properties. The form must be signed and agreed upon by all parties.
What to Include
The following should be included to ensure an all-encompassing Closing Extension Addendum:
- Seller(s) Name
- Name of Seller’s Agent (if any)
- Buyer(s) Name
- Name of Buyer’s Agent (if any)
- Date of Original Agreement
- Property Address or Location
- Original Closing Date
- New Closing Date
- Seller(s) Signature and Date
- Buyer(s) Signature and Date
- Signature of Both Agents with Date (if any)
Why Use a Closing Extension
A Closing Extension Addendum can be utilized for many reasons. Most commonly it can be used due to:
- Issues with Appraisal: If the property appraised at a lower value, this may require the Buyer to provide a higher down payment amount that they cannot readily provide. The Buyer may then need additional time to acquire the funds for the down payment.
- Issues with Underwriting: While the most critical step for any Buyer is to get pre-approved prior to beginning the process of home buying, unfortunately some buyers do not complete this step. This could mean that once an offer has been accepted, if the Buyer is not pre-approved and there are issues with their finances or credit, they could be at a higher risk of delays. With that, a pre-approval does not guarantee a loan. Additional delays can be seen when a lender requires additional explanations or documentation from prospective Buyers. However, there are other underwriting issues that may not be due to the Buyer. There can be moments where the process within the lenders themselves, is the what takes extensive time due to how in demand they may be.
- Issues with Final Walkthrough: If issues are identified during the final walkthrough, such as repairs not completed, utilities are not functioning, or toilets are not functioning and so forth, this would be cause to seek a Closing Extension Addendum.
- Issues with the Title: Should there be issues discovered with the Title of the property, such as tax liens (federal or local), Home Owners Association (HOA) liens, or prior owners still containing some portion of owner’s interest, this may cause a delay that would require an extension.
- Issues with the Inspection: In the event serious problems are identified with a property, they could cause additional steps to be taken. Dependent on the number of issues identified and the length of time it takes to rectify all issues, would depend on the new closing date. In addition, the contract may need to be renegotiated extensively if the issues identified are of a large magnitude (i.e. foundation, roof, etc.).
- Issues with Secondary Loan: The Buyer may experience issues with a Secondary loan falling through or being behind. This is most common when Buyer’s utilize loan assistance programs outside of the traditional lender.
An Extension Fee may be added to the Closing Date Extension form as a clause but is not required. This will be dependent on the reason for the Extension and the Seller themselves. A Seller may opt to include or request this fee if they have already provided extensive funds from their end (i.e. taking care of repairs, paying for the Buyer’s closing costs, having to pay additional mortgage payment, etc.). The amount is variable but can stem from hundreds of dollars to thousands. Of note, any fee that is made at the request of the Seller should be addressed in the original terms of the agreement or the Close Date Extension Addendum, as both are legally binding documents. Otherwise, the Buyer is under no obligation to pay the fees requested by the Seller. It is important to note that a lot of real estate agents frequently add these fees to the contracts as a common step, to avoid having to add it later and ensuring the Buyer is aware.