Real Estate Round-Up: Extension of time

What exactly does extension of time mean? If I’m parking my car at a meter with a limited amount of time on it, and I see the meter attendant approaching, I sure would like an extension of time to avoid that costly fine. Or if I’m on vacation and finally feeling relaxed, I sure would like an extension of time, so I could stay a little longer. But, as we all know, time doesn’t just extend. Time is finite. Time is exact.

In a real estate contract, there are exact times that are agreed to by both parties when the contract is fully executed. The California Association of Realtors Residential Purchase Agreement and Joint Escrow Instructions includes boiler plate dates, meant to provide a starting point as clients decide what represents the timeframes that they are prepared to honor. Both parties mutually agree on the final times when they fully execute the contract.

Examples of some of the times stipulated to pertain to when the earnest money deposit must be into escrow, when the seller must deliver all their disclosures to the buyer, when the buyer must complete all their inspections, when the appraisal must be completed, and when the loan must be approved. When a seller reviews offers on their property, they compare many details beyond the purchase price, loan amount and close of escrow. The timeframes offered by the buyer may become an important component in the desirability of their offer versus competing offers.

Once a purchase agreement is fully executed, neither party can unilaterally change any of the terms. If something needs to be adjusted, based on a new finding, an unanticipated repair, or an appraisal issue, both parties need to come back to the table and agree on the resolution of that issue. If the resolution requires additional time than what was originally agreed to, both parties need to agree to that additional time. Without mutual agreement, the party running behind the timelines is in default.

The “Extension of Time Addendum” comes into play when either party is not able to honor the original dates both parties agreed to. For example, if a buyer in good faith, does their home inspection within the timeframes agreed to, but that inspection calls out the roof for further inspection, they may find that they are butting up against the agreed date.

The correct thing to do is to write an extension of time, specifically for that activity. Correctly notifying the seller of your need to get a few more days and having the seller agree to that extension keeps you “in contract." You’re not in default once both parties sign the ETA agreeing to the additional time.

In practice, what occurs far too often is the Realtors communicate about the needed additional time and proceed without the fully executed ETA, with the intent of resolving the issue and continuing with the transaction. These kinds of understandings are commonplace and are great until they’re not. What can make an unwritten understanding go bad?

In a market like we’re in currently, where inventory is extremely low, imagine a seller receiving a back-up offer at a higher price. Without the written ETA, the seller could deliver a “Notice to the Buyer to Perform” on the defaulted action. Remember, without the fully executed ETA, any past due activities constitute default.

I prefer to play nice in the sandbox, but not all Realtors or sellers may approach things the same way. Frankly, they aren’t being unreasonable to expect the buyer to perform based on the agreed terms.

I don’t want to make it sound like they’re not playing nice in the sandbox if they expect the buyer to honor the original contract timelines. It’s just that when it goes bad, it can go really bad without a written document expressing the understanding of both parties.

What’s the lesson here? If you’re in a real estate transaction, first of all, don’t drag your feet. Upon acceptance, do what you’ve agreed to do and do it promptly. If you find yourself in a situation where you need more time, don’t delay, ask for the additional time on an ETA. Things are always best approached through communication and documentation, as soon as you know you need it, and then both parties feel that their position is being respected by the other party.

After all, none of us like to operate in the dark; we like to feel empowered. Equal participation and commitment by both parties is required for that to occur. Here’s to the ETA in real estate. I wish it existed in other parts of my life, especially vacations.

Kim Murphy can be reached at [email protected] or 760-415-9292 or at 130 N Main Avenue, in Fallbrook. Her broker license is #01229921, and she is on the board of directors for the California Association of Realtors.