Extension Addendum to Contract: Everything You Need to Know
An extension addendum to contract is made when the parties agree to alter the terms or language of the original or existing agreement.3 min read
An extension addendum to contract is made when the parties agree to alter the terms or language of the original or existing agreement.
An extension addendum to a contract may be made to change the original purchase price or to change the closing date of a real estate purchase. Either change must be made via an addendum to the contract to be legally binding when modifying real estate contracts.
Extending a Real Estate Closing Date
If the closing date of a real estate purchase needs to be changed, provide a valid reason to why the date must be extended with the caveat that all other terms will remain the same. By providing a justified reason, the other party will be less likely to think the contract and impending sale is falling through. A concession may be offered to show a sign of good faith. A buyer may offer more earnest money, or a seller may start working on any repairs the buyer has requested.
Once the parties agree to the new date, the contract addendum should be drafted by an attorney or qualified real estate agent. The following must be stated:
- Buyer and seller's names
- Date of the original agreement
- The original closing date
- The new closing date or by how many days the contract will be extended
The buyers and sellers should then sign and date the contract with two witnesses present for verification purposes. Copies of the newly signed contract should be distributed between all parties.
The contract should be thoroughly reviewed, including terms, dates, and language. The contract may be written in a way that includes an unexpected extension. For example, if the terms of the contract begin when the escrow is opened and that occurs one week late, you gain an extra week due to the delay. These extensions may also be beneficial to the other party, so discussing contract extension dates prior to drafting the addendum is recommended.
When Closing Doesn't Go As Planned
A missed closing date can be caused by issues when attempting to finalize the loan to previous real estate issues appearing when applying for the loan. Short sales, foreclosures, or personal judgments are examples of reasons a lender may slow the loan process and delay the closing date. Buyers may also experience family or work-related issues that cause a delay.
A delayed closing opens a myriad of problems because the purchase contracts include an acceptance date and a closing date. If the buyer misses the contract date to close escrow the contract is put into question. If this occurs, the buyer will often request a contract extension. Sellers won't always grant the extension if they believe property values have recently increased or if they feel the original purchase price was too low. The seller may decide to put the property back on the market to increase their profit.
To avoid the sale collapsing, the buyer who is still serious in their plans to buy the property may offer to release the earnest money to the seller. This action shows intent to move forward and will help relieve any doubts the seller may be feeling when the contract extension is requested.
Extensions on Short Sales
When an extension addendum is needed for short sales, the seller's bank will issue a new Short Sale Approval Letter. The letter will state the new escrow closing date. The earnest money, at the acceptance of the offer, should have already been paid. If the seller's lender does not agree to the extension and causes a delay, you can attempt to have the deposit returned and have the contract canceled. This is possible because the contract is between the seller and the buyer, not the seller's lender and the buyer.
Any delays may also cause the inspection period to lapse unless the seller agrees to extend the contract dates. With short sales, the sellers know that the process is not simple and will grant extensions to the buyer to keep the sale process moving forward. If the sale is delayed due to the seller's lender and a closing cannot take place, the seller is seen as in breach.
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