What Happens If a Real Estate Agent Misses a Deadline?

As a real estate and business litigator — as well as a real estate broker — I get asked about deadlines a lot. While every circumstance is different, it’s important to keep in mind that the agent or broker is working with the clients to meet important deadlines — but the agent is not solely responsible for them.

The standard purchase/sale agreement between buyer and seller (i.e., the PSA) sets the contractual deadlines that both sides must abide by leading up to a closing. While the agent is not technically a party to the PSA, they do owe fiduciary duties to their client, whether buyer or seller, to ensure all deadlines are met.

Agents owe a multitude of fiduciary duties to their clients; one such duty includes following their client’s instructions and providing diligent and faithful service. A breach of these duties can have serious consequences, including losing the transaction (the purchase or sale) for the client.

Here are some examples of missed deadlines and how they could play out in court.

Scenario #1: Buyer Misses the Deadline to Pay the Initial Deposit

The PSA specifies the period of time (usually three days) that the buyer has to make the initial deposit toward the purchase price and deliver it to the escrow company. If the buyer misses the deadline, the seller may legally cancel the contract, withdrawing the buyer’s right to purchase the property. Typically, the seller is required to first serve a notice to perform to the buyer and give the buyer the chance (two or three days) to make the deposit. However, the seller may be entitled to damages for the delay.

What does this mean for the agent?

While the initial deposit deadline is solely the contractual obligation of the buyer, the agent should take all reasonable steps to make sure the buyer knows the deadline and has all the information they need to make the deposit in a timely manner. This includes getting the name and contact information of the escrow officer, as well as making sure the clients know where and how to transfer the deposit funds, the exact amount, and any other necessary details to accomplish the payment on time. Failure to inform the client of their deadline — and to inform the buyer of the consequences of missing it — could constitute a breach of the agent’s fiduciary duty. If the buyer’s agent did their due diligence and informed the client of their obligations and the consequences, but the buyer still misses the deposit deadline, then the agent can defend a claim of breach of fiduciary duty, arguing that they did their part.

Even without liability for missing a deadline to make the initial deposit, a buyer’s agent still should avoid this situation whenever possible. If you find out your client can’t make the deadline to pay the deposit, communicate with the seller’s agent as soon as possible and try to negotiate an extension. The more you do to protect your client from a breach of contract dispute, the more likely you are to satisfy your fiduciary duties to your client and avoid the risks of litigation.

Scenario #2: Buyer Fails to Close Escrow

The PSA will set a date that the purchase/sale must be completed and escrow closed. What happens if the buyer fails to close escrow and complete the purchase on time? In this situation the seller, through their agent, might deliver a Demand to Close Escrow (DCE) to the buyer, allowing a specified number of days (usually 2-3) to complete the sale. Even so, the seller can reserve the right to claim damages for each day that escrow fails to close past the deadline set in the PSA.

Sometimes the buyer is unable to close escrow in a timely manner due to holdups caused by third parties. For example, the lender may delay delivery of the money being used to make the purchase. Lender delay might be caused by the buyer not giving the lender the necessary information on time. Or, the lender’s internal procedures might take longer than expected, through no fault of the buyer. Regardless of the reason for the delay, as long as the seller isn’t the cause, the seller could claim the buyer breached the contract, and seek any fees and costs associated with the delay. Alternatively, the buyer could try to cancel the contract altogether.

There’s typically a mediation clause in the PSA that requires buyer and seller to attempt to informally resolve their dispute before either party takes formal action (i.e., files a lawsuit). In my experience, more often than not, the parties are able to work out their differences and agree to a compromise. However, even mediation can be costly and take a long time (often months) to complete.

What does this mean for the agent?

A buyer’s agent’s liability for the delay will depend on the facts of each case. For example, if the agent informed the client of the deadline to close escrow, as well as the consequences for failure to do so, and did everything they could to help them meet the deadline, then it is possible that the buyer may be the sole party liable to the seller, and their agent is off the hook. But if, for example the agent allowed their client waive a loan contingency in the PSA without confirming the lender would actually fund the purchase on time, the agent could be liable to their client for failing to protect them from the consequences. In another hypothetical example, if the buyer’s agent didn’t notify their client in a timely manner that the seller made a formal DCE and they have a deadline to meet, that’s another possible basis for breach of duty and liability to the client. To avoid these risks, an agent representing a buyer should ensure their client has all they need to complete the sale by the deadline. This includes the remaining deposit funds, the loan, and sale of the first property, if applicable.

There are now COVID addendum forms that can be used to prevent these negative outcomes by extending the time to close if the failure to close was due to COVID-related delays. An agent should consider using these forms, especially if the client is concerned about COVID-related risks, whether due to travel restrictions, financing, or the consequences of contracting the virus themselves.

Scenario #3: Seller Fails to Deliver Possession Upon Sale

Think of a scenario where the purchase/sale contract is signed and escrow has closed, but the seller is still in possession of the property and fails to move out. What happens then? Once again, this could be a breach of the PSA, and the seller could be responsible to buyer for any fees and costs associated with the delay. In certain situations, the seller’s agent could be liable for breach of duties to their client, too.

If the agent was aware the seller would be pressed for time to move out, the agent should suggest a Seller in Possession addendum that allows the seller a specified period of time to continue to occupy the property after the sale. This addendum is especially useful when sellers need to count on timely closing escrow on their replacement property. (Note: The PSA also provides an opportunity for the seller to explicitly disclose to the buyer that the sale is contingent on the closing of the seller’s replacement property.)

What does this mean for the agent?

If a seller’s agent learns during the contract period that their client might not be able to be out of the house in time for the closing, the agent should communicate that to the buyer’s agent and try to negotiate a compromise. Possible solutions could be an extension to the close of escrow date, or a leaseback agreement in which the seller pays the buyer (now owner) for the right to remain as a tenant of the property for a fixed period of time.

The seller’s agent should be frequently checking in with their client in the days and weeks leading up to the close of escrow date, to ensure that the seller is able to vacate the property on time. If the seller is in the process of purchasing a replacement property, the seller’s agent should be asking for updates from the seller on the status of that purchase, too.

Liability Takeaways for Agents & Brokers

The central theme in all of these scenarios is that the agent has duties to their client to take steps to prevent the client from breaching the purchase/sale contract. Even though the buyer and seller are the only parties to a purchase/sale contract, the agents for both parties should not wait until a breach occurs to step in and help.

Rather, the agents should be proactive in informing their clients of their contractual obligations under the purchase/sale contract and the deadlines set forth in that contract. The agent should also take all reasonable steps to ensure the client is actually able to meet their deadlines in the purchase/sale contract. Taking these extra steps will go a long way to avoid disputes between buyers and sellers, and liability for the agent.

Image courtesy of iStock.com/Nuthawut Somsuk

Last updated on Jul 24, 2024.
Originally published on May 07, 2021.

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The views expressed in this article are those of the author and do not necessarily reflect those of Berxi™ or Berkshire Hathaway Specialty Insurance Company. This article (subject to change without notice) is for informational purposes only, and does not constitute professional advice. Click here to read our full disclaimer