No, there is not a specific penalty for a seller for not closing on time. In all likelihood, assuming that all parties still want to close, the buyer will grant the seller an extension on the closing date which is the path of least resistance.
However, in the event that the seller is playing games and no longer wishes to sell, the buyer can put the seller in default for not abiding by the contract and get his or her earnest money check back, plus sue for specific performance or damages.
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Granting an extension usually makes sense if all parties are making a bona fide effort to close in a timely fashion, and the seller simply needs a few more days to get his or her affairs in order.
In this situation, it doesn’t make sense for the buyer to force the seller into a technical default by not granting an extension if the buyer still wishes to buy the property, and the seller is making best efforts to close.
Remember that many standard Realtor contracts will stipulate that in the event of a default by the seller, the buyer can either sue for specific performance or sue for damages, but not both.
Here’s what a Florida closing attorney had to say about the matter:
Unfortunately, the options are limited. If the Seller fails to close by the extended closing date, the Seller will be in default of the contract. The contract provides a right to sue for specific performance or to receive the return of your deposit with the ability to sue for damages. You cannot sue for specific performance and damages. In generally, it’s difficult to sue for damages.
The Seller is not obligated to compensate you even if they are in the wrong, and their failure to close creates expenses for you which you would not have incurred if the Seller closed per the terms of the contract. Any compensation would have to be negotiated as part of reaching an agreement to extend the closing date.
I know you have a lease expiration issue. A possible solution would be a pre-occupancy agreement, but it would be hard to get done without a firm understanding of where the Seller is in clearing the lien we talked about from his property.
Of course, there’s no reason you can’t try to negotiate a concession in exchange for extending the closing date, such as a per diem for alternative accommodations.
For example, you could argue that since you won’t have a place to stay because the seller isn’t ready to close, he or she should reimburse you $250 a day for each day the closing is delayed. Or you could simply ask for a specific dollar amount in exchange for extending the closing date a certain number of days.
Be prepared for the seller to call your bluff if he or she believes you’re getting a good deal, and that you won’t be walking away from the transaction. If that happens, you’ll end up effectively having to extend the closing date anyway as there’s no point in suing the seller for specific performance if he or she is already making a bona fide effort to close.
Pro Tip: Take a look at comparable properties before you make a decision to back out. Is there similar inventory that you could credibly purchase in lieu of this one, at a similar price point? If the answer is yes, then you have much more power to demand a concession in exchange for an extension of the closing date.
The most important question you should be asking yourself when a seller isn’t ready to close is whether he or she still wants to sell, and whether he or she is able to sell.
For example, let’s say you got a really good deal on your contract because the seller panicked, and now the market has gone up dramatically. As a result, it’s reasonable that the seller might have some seller’s remorse, and wishes to back out of the contract so he or she can re-sell it higher.
If this is the case, then the seller may be playing games in the hopes that you give up and decide to buy something else, with minimal litigation for damages.
This is more likely to happen if the property is rented out as an investment property, or if the seller is currently occupying the property.
In these situations, the seller isn’t feeling financial pain from continuing to hold onto the property, and as a result, won’t be as pressured to sell.
However, the situation might be different if the property is vacant, or currently uninhabitable because it doesn’t have flooring (i.e. currently concrete, “developer ready” condition). In that case the seller might be highly incentivized to close because of high monthly running costs, especially in high property tax states like New York or Florida.
Is the seller able to sell?
You also have to ask yourself whether all interested parties necessary to get the deal done are also interested in doing so. For example, in the case of a short sale where the seller is short on cash and wants to assign his existing mortgage to another unencumbered property he owns, the lender will have to sign off on such a substitution of collateral.
In this example, the seller’s existing mortgage lender is a gatekeeper, and doesn’t have to agree to the collateral substitution and subsequent lien release on the property being sold. You’ll have to analyze whether the seller’s lender thinks it’s worthwhile and in their best interests to agree to the loan modification.
Pro Tip: If you really want to buy a piece of property, then there’s not much you can do unless you’re willing to walk away and sue for damages. But since you can’t sue for damages and still compel the seller the go through with the contract, you don’t have many options if you actually want the property.
