What to expect when you're extending

Buyers often need to request an extension to their closing date. The main reasons are as follows:

The buyers have not yet sold their current home; or

The buyers' financing has fallen through or the buyers have not complied with all of the lender's requirements;

The main lesson for everyone is that no buyer is automatically entitled to an extension. If a buyer can't close, the seller can take the position that the buyer is in default, sue for the deposit and any loss that they may suffer in the re-sale of the property.

Real estate agents are divided as to whether you should buy first and then sell your existing home or sell first and then buy. No solution is risk-free. Buyers also need to remember that just because you are approved for a loan, you still have to fulfill all of the lender's requirements, such as proof of income or debt repayment, before they will give you the money.

When you ask for an extension, here are the terms that you can expect to face from a seller. Remember, your bargaining position is not good.

The seller will likely request an additional deposit, equal to the initial deposit, to be held by the seller lawyer in trust;

The buyer will have to pay the seller's interest costs on any mortgage that cannot be discharged; so for example, if the seller has a $300,000 mortgage and interest accrues at 4% interest or $33 per day, then the buyer has to pay this cost for the full extension period;

The buyer will pay the seller's legal fees to do the extension, which can range from $250 - $500, plus HST; and

The buyer may have to pay additional costs, depending on when the extension was requested; - for example, if the extension is requested on the closing day, and the seller has already packed up the truck, the seller may request payment of all of their additional moving costs as a result of the request.

One of the main considerations for the seller in agreeing to give an extension is whether they need the money from the sale for their own home purchase closing the same day. This is what occurred to a buyer client of mine who required an extension at the end of October, 2013. Their seller also needed to close a purchase the same day. This seller was able to negotiate an extension of their own sale, but expected my client to pay all of their extension costs as well. Thus my clients had to pay the seller and the seller's seller a total of $2,500 to get a one week extension. This was still a good result for my client, as they could have forfeited their deposit and faced a lawsuit if the seller did not agree or was not able to arrange the extension.

If you know that you are going to need an extension, do not wait until the last minute to make the request. Let your lawyer or real estate agent know as soon as possible and make the request, so that no unnecessary costs, such as moving arrangements, are entered into.

There is also closing protection insurance available to home buyers and sellers in Ontario. One such company who I work with (full disclosure) is Canadian Home Shield at www.canadianhomeshield.com . They offer insurance coverage for $99 for home sellers and buyers so that if their sale is delayed or cancelled and it is not their fault, they can claim for costs of up to $25,000. I have had several clients take advantage of this policy to collect damages such as increased moving costs as a result of delayed closings.