The Per Diem Charge and What it Means to a Transaction

Probably the second number that a home owner looks at when they receive an offer on their home for sale is the Closing Date. It can mean the difference between a quick close or extended close. The accepted average number for closing a transaction is 30 days, but sometimes a luxury home buyer will be using jumbo loan financing, and it is not uncommon to request 45 days or more to close.

As it sometimes happens, the lender is not able to get their underwriting process in line with the contract closing date. Both buyers and sellers are left wondering what they should do. Technically, if the transaction does not close by the agreed to date, than the party at fault is in breach of the contract. Let me make this clear…the contract is NOT “null and void” as some agents will falsely tell their clients, but is instead “in breach of”, and of course, there is a remedy.

What can a seller do?

  • Well, first off, you want to let the buyer know you are willing to wait for their lender to get their act together, and thus extend the closing.
  • Next, utilize the “Per Diem” charge for each calendar day they do not close from the original contract close date. Since sellers are now incurring daily charges via mortgage payments, taxes, etc, that they had not initially accounted for when calculating their bottom line, it is in their right to make the buyer pay for these expenses.

Case in point, a luxury home listing of mine which closed recently utilized the Per Diem charge. When the buyer’s lender failed to get the documents processed and through underwriting by the closing date, we told the buyers they would be responsible for this daily charge. Considering it took another four calendar days to close, this added up to a decent sum of money. While the buyers were angry at the lender for this charge, the sellers were fairly compensated for the buyer’s breach of the contract.

There are obviously many ways to structure a Per Diem charge in a closing, and as always, many ways to negotiate the fee. Charging a Per Diem amount not only helps the seller escape additional expenses created at no fault of their own, it gets a fire lit under the buyers to pressure the lender to get their act together.

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