When it comes to buying a house, time can be your best friend. With high interest rates in the money market, every day you delay closing escrow is a day you’re earning free interest. You could even stretch your escrow period so long that the extra interest covers all your closing costs and then some. It’s like getting a free call option when you buy a house with contingencies. The longer you extend escrow, the more valuable that option becomes.
Let’s break it down with an example. Say you’re buying a house for $1,750,000. Closing costs, including things like title fees, settlement fees, notary fees, and recording service fees, can add up. For a house of this price, you might be looking at around $5,315.45 in closing costs. But if you delay closing escrow by just a month, you could cover all those costs for free.
How? Well, if you’re able to pay all cash for the house, a 5% return on $1,750,000 is $87,500 a year. You can get that 5% just by keeping the money in a money market fund. So, if you hold onto that $1,750,000 for an extra month in a money market fund, you’ll earn around $7,291. That’s more than enough to cover the closing costs. Even if you only put down the standard 20%, or $300,000, you’d still earn $1,250 in interest by delaying escrow for a month. Not too shabby, right?
But earning more risk-free income isn’t the only reason to delay closing escrow. Maybe your lender needs more documents, or you need more time for your home inspection contingencies due to property damage. Maybe there are appraisal issues, or title issues, or problems that come up during the final walkthrough. All of these can push back your closing date.
There are also less common reasons to extend escrow. Maybe you’re having trouble finding affordable home insurance, or you’re getting cold feet about the purchase. Maybe you’ve got a family emergency, or work is sending you overseas at the last minute. Maybe you’re having trouble transferring funds, or you’re waiting for your new furniture to arrive, or you’re still looking for the right tenants for your current home. There are countless reasons you might want to delay closing escrow.
So, how do you go about extending your home closing period? It might not be easy to get the seller to agree, but there are strategies you can use. You could blame the lender, or slow down your response times. You could cite a personal matter, or offer a good faith deposit to the title company. You could even wire addendum money directly to the seller.
Remember, selling a home is stressful for the seller too. They’d probably rather deal with a delay than have a buyer back out completely. And if there’s a home inspection contingency, the seller might be the one causing the delay. For example, if a part is on backorder, it’s understandable that the close of escrow would be delayed.
But what if the seller is the one delaying escrow? That actually gives you more leeway to delay as well. If the seller needs to delay by three weeks because of a backordered wallpaper, you could also delay by three weeks. It’s only fair.
Just be aware that if you delay too much, the seller might get a lawyer involved and serve you a “notice to perform” letter. This is basically a warning that if you don’t make progress, the seller can keep your earnest money deposit and cancel the purchase contract. If it comes to that, litigation could be the next step.
So, before you buy a home, make sure you’re absolutely comfortable with the decision. If you need more time, don’t be afraid to ask for it. The seller is unlikely to cancel escrow just because you ask for an extension. And if you need more than a two-week extension, consider offering to send part of the down payment to the escrow company or sending addendum money to ease the seller’s concerns.
Just remember, there’s probably a limit to how long you can delay. After about a month, the seller might start having serious reservations about continuing escrow. But who knows? Maybe that’s exactly what you want!
So, have you ever delayed escrow? What was your reason? Did you ever try to delay and the seller refused? What happened then? Let’s discuss!
