Time is of the essence clause in real estate explained
Writer Evelyn Waugh once said, “punctuality is the virtue of the bored.” Well, buying a house is anything but boring. Between the inspections, appraisals, contracts and negotiations, you’ll have a whirlwind of activity to work through. And you don’t have the luxury of falling behind on a single step along the way. In real estate, punctuality isn’t a virtue at all; it’s a requirement.
Delays can be very costly for both buyers and sellers, which is why real estate contracts contain language to keep things moving along. In particular, time-is of-the-essence clauses are often built into purchase contracts to prevent postponements. Read on to learn what time is of the essence means within the mortgage process and how you can stay on the right side of these contractual terms.
What is the meaning of time is of the essence?
Time is of the essence refers to a number of different stipulations in real estate transactions detailing precisely when certain actions need to be taken. These terms can be specifically listed within your purchase contract as time-is-of-the-essence clauses, but that’s not always the case.
In fact, you may never actually see the words “time is of the essence” included in your real estate contract. But rest assured, this concept permeates the entire homebuying journey. For instance, sellers often have seven days to send over disclosures after accepting an offer.
Time-is-of-the-essence clauses can apply to both sides of a real estate agreement, giving buyers and sellers clearly defined windows to complete required tasks. The intent here is to avoid unnecessary delays that could negatively impact other parties. Let’s say your lender ignored this concept completely, taking weeks to handle routine tasks. Your home purchase could be left in limbo while you wait for your loan application to be approved, for an appraisal to be scheduled and for underwriters to sign off on your financing. Suddenly, you might find that your 30-day or 60-day closing window has shrunk precipitously, putting you and the seller in a bit of a bind.
8 most common time-is-of-the-essence clauses
The path to homeownership is littered with time-sensitive tasks that need to be taken care of as soon as possible. Both buyers and sellers have a long list of to-do items, all of which will be completed in a very particular order. As a homebuyer, the most common examples of time-of-the-essence tasks you’ll encounter include the following:
- Real estate agents need to submit an offer in a timely manner after confirming with the homebuyer.
- Sellers may have to either accept or reject an offer within 24-48 hours if so stipulated by the homebuyer.
- Once the offer is accepted, the seller needs to send a list of disclosures.
- At the same time, the buyer is expected to set up a home inspection.
- The buyer must also be approved for a home loan shortly after the offer has been accepted.
- There’s usually a clearly defined window to complete the attorney review period, with both sides coming to an agreement on preliminary terms.
- The lender needs to fulfill the loan agreement and provide funding for the home purchase.
- Both parties agree to close on the sale by a certain date.
Many of these requirements will be outlined in your purchase agreement. Be sure to read it over carefully as soon as your offer is accepted so you know what’s expected of you.
At the same time, don’t panic if you think you might fall behind on something. There’s usually some flexibility if either side is unable to meet the deadlines established within the purchase contract. It’s important to get ahead of those issues as quickly as possible and inform your real estate attorney, real estate agent and loan officer as well as both the seller’s listing agent and attorney. In many cases, these matters can be worked out without too much hassle. But, then again, that’s not always true ...
What happens when you violate a time-is-of the-essence clause?
In the most extreme cases, breaching explicit time-is-of-the-essence clauses can be pretty catastrophic for a homebuyer. Failing to secure financing, for instance, would leave the deal dead in the water. Other missed dates might not be as dire, though. If you can’t schedule a home inspection before the deadline, requesting an extension shouldn’t be too big of an ask.
As you can see, the consequences of such a breach of contract can vary significantly. Depending on the severity of the postponement’s impact and any extenuating circumstances, fallout will usually cover one of these scenarios:
- Push back agreed-upon dates in the purchase contract to accommodate delays
- Negotiate compensation for any negative impact befalling either the buyer or seller
- Terminate the deal completely
Keep in mind that it cuts both ways. If the seller misses major deadlines, like making the home available for an inspection or appraisal, you could potentially use that as a bargaining chip to negotiate more favorable purchase terms. All the more reason to keep a close eye on the timelines listed in your real estate contract.
Are time-is-of-the-essence clauses the same everywhere?
While there are some general timelines that the real estate industry tends to follow — for instance, 30 or 60 days to close is pretty typical — they’re not exactly set in stone. You can expect the specific timelines to fluctuate depending on the terms of your purchase contract.
Different locales may handle time is of the essence in their own way, as well — in particular, when it comes to enforcement. While there isn’t a clear-cut disparity between, say, how Illinois and California view time is of the essence, courts and judges may have their own opinions on the subject. What’s considered a reasonable postponement in one court may be deemed egregious and posing material harm in another.
Time is of the essence is a core concept within the real estate industry, keeping the wheels in motion as you work through the homebuying journey. Every important step, from submitting an offer to closing on a house, may be subject to time-is-of-the-essence clauses. And breaching those terms could result in some pretty devastating consequences, potentially even killing the deal.
As such, you need to stay on top of your purchase timeline so you don’t fall behind. Be sure you work with a team of real estate professionals who can help you navigate your contractual obligations as a homebuyer. That includes a real estate agent, real agent attorney and loan officer. With these experts in your corner, you won’t have much to worry about.