Contract Extension Negotiation Recommendations?

[CWESTL]

I submitted and obtained an accepted contract to purchase a property cash approximately 25 days ago. Subsequent to providing my earnest funds I mentioned to my realtor I was exploring financing options as an alternative. I've kept in contact with my realtor regarding my efforts to secure financing and today my mortgage lender provided the preapproval documentation to my realtor. Upon receipt of the preapproval my realtor conversed with the seller's agent about an extension of the closing date by approximately 20-25 days. The seller's agent indicated she wants me to provide $20k of nonrefundable earnest money in order to extend the closing date. This is a significant amount of money to lose if something delays or causes issue with the closing. Any suggestions about counter offers that are more reasonable? The seller's agent is a broker for the same realty company as my realtor.  

[StartingOver10]

Just to turn it around a bit, why did it take 25 days for you to get a pre-approval?  That is scary.

I bet the seller and seller's agent are worried that you won't be able to close within the time for extension and that is why they are requesting the non-refundable deposit.

Now, if you decided to go for financing recently and just made application for your pre-approval then that is different. Is the lender you are using a lender refered to you by your Realtor?

If not, does the lender you are using have a good reputation for closing on time or a reputation for promising more than they deliver? This can make a difference in your negotiations.

If you have a good lender that closes on time (from application and docs submitted) then have the seller's Realtor discuss your capacity to close with the LO. Naturally the LO can't disclose your personal financial data, but the LO can discuss the fact that he has reviewed your docs, if he has, and the time frame from now to closing. It becomes a call to assure the seller and the seller's agent that you aren't employing delaying tactics for some other reason and that you will actually close.

Then you and your agent just negotiate the non-refundable amount as a sign of good faith. This issue here is not that you are financing the purchase rather than paying cash, but the fact that you didn't disclose it for 25 days. You need to regain the trust of the seller again. Remember the seller made plans based off your contract and now the seller's plans have changed because you are not able to perform under the contract.

What is the $20k as a percentage of the purchase price? The purpose of a non-refundable amount is to keep you performing in accordance with the contract terms, after all, if you close within the extension period you don't lose your money. You only lose your money if you default.

[StartingOver10]

Two more things: 

(1)  I can tell you from an agent's perspective the lender you choose would make a material difference in your negotiations of the non-refundable amount.

If your pre-approval is from one of the big box banks like BOA, Wells Fargo, Chase, PNC etc, then for sure the amount of non-refundable deposit would be as large as possible because of the propensity for the big box banks to either not close at all or to delay the closing.

Same thing if you are working with a mortgage broker that does not underwrite and fund their own loans.

If you are working with a lender that does close timely, then it would be much easier to negotiate a smaller non-refundable deposit.

(2) Make sure that the seller's agent (your agent can do this) is aware that TRID doesn't go into affect until Oct 3 2015 and anyone that has made application (not closing) prior to Oct 3 is still under our current system of closing. Some agents are under the impression that the Oct 3rd date is for all financed closings, which is incorrect, only those loan applications made on or after Oct 3rd.

[Anonymous]

If you're attempting to get a loan through one of the big banks don't risk the $20K.  That is too much money to lose and it will definately cause you a lot of stress.   Find a lender who issues a commitment letter after your file is reviewed by an Underwriter. 

[CWESTL]

Thanks for your advice. The $20k is approximately 15% of the purchase price. I had to wait approximately 20 days until I obtained/received the preapproval due to my 2 year anniversary waiting period from Chapter 7 discharge. The application could not be taken and reviewed by underwriting until approximately August 24th. I'm working with a mortgage broker that funds their own loans.  .  .  not a large mortgage lender (i.e. BOA, Wells Fargo, etc.). I'm willing to increase my purchase price offer and provide some nonrefundable earnest funds, but not $20k.  

[StartingOver10]

Now I understand - the waiting of 20 days was critical to your approval and subsequent application. I hope the seller will work with you because $20k is a huge amount of non-refundable deposit.