How does Tail Provision work?
Tail provisions allow extending the closing date in real estate contracts. The tail provision builds in an option to extend the closing if mutually agreed upon during the transaction process. It provides flexibility while avoiding open-ended delays.
- The tail provision clause is included in the original purchase and sale agreement negotiated between the buyer and seller.
- This clause will state that the closing date can be extended past the original closing date under certain circumstances. It specifies the number of days or months the tail period can be extended.
- Common tail extension periods range from 30-90 days. Some even allow for 6 month tails. Both parties must agree to actually enact the tail extension.
- The tail provision might be triggered if the buyer needs more time to finalize financing, complete inspections, or finish other closing contingencies.
- The buyer’s real estate agent would request the tail extension from the seller’s agent before the original closing date passes.
- If the seller agrees, the closing agents are notified of the new closing date per the tail provision. If not agreed to, closing must occur on the original date.
- Once the tail closing date approaches, the contract allows for one more extension if both parties agree. Otherwise, closing must occur by the end date stated in the provision.
- If the buyer is still unable to close by the final tail date, the contract is usually terminated and earnest money deposits may be forfeited.
- Well-written tail provisions will outline the valid reasons for extending the closing and the exact process to enact the tail. This prevents misunderstandings.
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Sellers may back out if they receive a new offer substantially above the accepted bid price before closing, especially in competitive markets. While tempting, simply terminating an existing contract due to a higher offer can have legal consequences.
Sellers should consult their real estate attorney on rights and obligations in this situation before moving forward.
Tail Provision Best Practices
The best practice one can benefit from is crafting terms that provide some flexibility without introducing too much uncertainty into the transaction. Tail provisions should include guardrails and protections for both parties involved.
Here are some best practices for using tail provisions in real estate contracts:
- Specify a reasonable tail extension period – 30-60 days is typical. Avoid tails longer than 90 days.
- Outline specific qualifying events like financing delays that allow enacting the tail. Don’t leave it open-ended.
- Require mutual written consent from both parties to trigger the tail extension. Don’t allow one party to extend unilaterally.
- Limit the tail to a one-time extension. Specify the exact extension deadline. Avoid indefinite tails.
- Put the tail end date in writing and notify all parties involved when it goes into effect.
- If possible, continue marketing the home during the tail period in case the sale falls through.
- Consider requiring an extra escrow deposit from the buyer to enact the tail extension option.
- Have a back-up offer ready or continue showings during the tail period to prevent losing buyers.
- Use tails judiciously. Rely on them as an exception, not the norm in contracts.
- Review tail provisions carefully with real estate attorneys before signing.
Where are tail provisions typically found?
Tail provisions are typically found in the contract terms section of a real estate purchase and sale agreement.
Specifically, the tail provision clause will be included with other contingency clauses like financing, inspection, and appraisal contingencies. It creates an additional contingency around the closing date.
Contingency clauses in a real estate purchase contract specify conditions that must be met for the agreement to be binding. They allow either party to terminate the contract if the conditions are not fulfilled.
Some common real estate contingency clauses include:
- Financing contingency – Allows the buyer to back out if they cannot secure a loan by the specified date.
- Inspection contingency – Gives the buyer time to inspect the property and potentially terminate based on findings.
- Appraisal contingency – Permits termination if the property appraisal comes in below the sale price.
- Title contingency – Allows the buyer to cancel if issues arise with the title search.
- Home sale contingency – Gives the buyer time to sell their current home before closing.
- Repair contingency – Requires the seller to fix defects identified by the buyer’s inspection.
- HOA contingency – Outlines the procedure for HOA approval of the buyer.
- Tail provision – Extends the closing date if delays occur.
These clauses provide protection and flexibility for the buyer, in particular. They outline scenarios where the buyer can cancel and get earnest money returned if certain criteria are not met.
Contingency clauses are standard in real estate contracts and help transactions move forward with less risk. They give both parties an “out” if specific conditions fail during the sale process before closing.
The tail provision spells out the conditions, timeline, and process for extending the closing. This gives both buyers and sellers clarity on the flexibility around the original closing date stated in the contract.
Having a clearly defined tail provision as part of the purchase agreement helps avoid confusion and disagreements later in the transaction process if an extension is needed.
By writing the tail provision into the original contract, it sets expectations upfront on how closing delays will be handled. This provides more transaction certainty despite the closing flexibility the tail allows.
Why are tail provisions important?
Tail provisions add an important contingency that enhances flexibility and certainty in real estate transactions for all involved. They provide critical contractual protection.
Tail provisions are important in real estate contracts for a few key reasons:
- They help transactions stay together if there are legitimate delays in closing, rather than having deals fall apart over timing issues. This benefits both buyers and sellers.
- Tails give buyers extra time to finalize financing, complete inspections, or resolve other issues that crop up close to closing. This reduces the buyer’s risk of losing earnest money.
- For sellers, tail provisions allow a sale to continue even if the buyer needs a short extension. Without a tail, the seller may have to remarket and find a new buyer.
- Tails build in closing date flexibility while avoiding open-ended timelines. A defined tail period balances both parties’ need for certainty.
- Tail provisions provide a contractual mechanism to handle closing delays, rather than relying on informal extensions and good faith.
- They reduce the likelihood of expensive disputes arising from closing timing discrepancies that could lead to litigation.
- Overall, tail provisions create a safer process when delays happen, as both parties’ interests are protected. This facilitates more real estate deals closing successfully.
Who can write a tail provision?
A tail provision in a real estate contract needs to be written or reviewed by a qualified real estate attorney.
Tail provisions have contractual weight, so real estate attorneys need to be involved in properly drafting and reviewing them. Agents and clients should avoid trying to create tail provisions on their own without legal guidance.
Here are some key points on who can author and work with tail provisions:
- Real estate agents typically do not draft actual contract language. However, they may suggest including a tail provision to their clients.
- Attorneys representing either the buyer or seller would be responsible for crafting the specifics of the tail provision.
- If using a standard purchase and sale agreement form, the pre-set tail clause should still be reviewed by both parties’ attorneys.
- Tail provisions require legal expertise to ensure proper guardrails and contingencies are included to protect both buyer and seller interests.
- Ambiguities or loopholes in a tail provision could lead to problems and disputes during the transaction process.
- Attorneys can help tailor the provision to the specific transaction, like setting an appropriate extension timeframe.
- It’s advisable for both buyer and seller to have their attorneys review any tail provision before signing the purchase agreement.
- Real estate agents can consult on typical tail timeframes and processes, but attorneys should handle the legal language and implications.
Litigation in the context of tail provisions refers to potential lawsuits or legal disputes that could arise related to the closing date extension or termination of the real estate contract.
Some examples of litigation that could occur without a proper tail provision include:
- The buyer sues for return of earnest money if the seller terminates the contract after the original closing date passes.
- The seller sues the buyer for failure to close if the buyer cannot finalize the transaction by the original date.
- The parties dispute the allowable length of the tail extension or validity of the delay.
- There is ambiguity around procedures for enacting or terminating the tail extension.
- Disagreements over whether qualifying events justify triggering the tail provision.
- Conflicts over the date the tail extension actually went into effect.
A well-written tail provision that outlines extension procedures, qualifying events, length, and termination process helps prevent such litigation.
But if the language is vague or contract terms are broken, either party could pursue legal action over disputes related to the closing delay and contract termination enabled by the tail.
Proper legal drafting of the tail provision is important to mitigate the risks and costs of potential litigation arising from closing timing issues.
Legal reasons
In some cases, there may be legal reasons that allow you to back out of a house offer. One important factor is the inclusion of contingencies in your home purchase contract. These contingencies are conditions that must be met for the sale to proceed, such as passing a home inspection or securing financing.
If these conditions are not fulfilled, it may provide you with grounds to cancel the contract without facing consequences. Another scenario where you might have legal recourse to back out is if there is a breach of contract by the seller, such as failing to disclose important information about the property.
Remember that each situation and contract is unique, so it’s essential to consult with a real estate lawyer who can assess your specific circumstances and advise you on what legal options are available.
Does every sales agreement has tail provisions included?
While tail provisions can be very useful, they are not an absolute requirement in all house sales agreements and contracts. The agents involved determine if the situation calls for the flexibility of a tail. Their inclusion is deal-specific based on the circumstances.
Not every real estate purchase contract includes a tail provision. Here are some key points on the use of tail provisions:
- Tail provisions are optional clauses that may be included in the contract at the discretion of the agents or attorneys involved. They are not universally required.
- Tails are more common in deals where there is higher perceived risk of delays, such as new construction properties or sales contingent on the buyer selling their current home.
- In very hot real estate markets, tails may be less common because sellers have less incentive to provide closing flexibility when demand is high.
- Simple transactions with all-cash buyers often forego tail provisions since fewer contingencies need to be met.
- First-time homebuyers are more likely to have tails to allow time for financing even if there are inspection waivers.
- Tail usage varies by state and local real estate customs. In some areas tails are typical, while in others they are rarely used.
- Ultimately it’s a negotiation between buyer and seller agents whether to include a tail provision or not in their sales agreement.
Read also: How does the house sale agreement work?
