When a real estate purchase agreement expires, the contract generally loses its legal force and neither the buyer nor the seller is required to go through with the sale. What happens when a purchase agreement expires in practice, though, depends on three things: why the closing date was missed, whether the contract made time of the essence, and whether both parties still want to close. Those factors decide who keeps the earnest money, whether the deal can be revived, and what each side can demand next.
Is the Contract Actually Dead?
A closing date on a purchase agreement is not always a hard cutoff. In many jurisdictions, writing a date into the contract does not automatically make that date a firm deadline, and either party may be entitled to a reasonable delay unless the contract explicitly says otherwise.
The deciding language is usually a “time is of the essence” clause. When the contract contains one, missing the closing date is treated as a material breach. The non-defaulting party can terminate and pursue remedies, including keeping the earnest money. If the buyer can’t close on time, the seller can walk and relist. If the seller causes the delay, the buyer can cancel and recover the deposit.
Without that clause, courts in many states treat the closing date as aspirational rather than mandatory. A party who wants to force the issue after the original date passes can typically do so by sending written notice setting a new “time is of the essence” closing date, as long as the notice gives the other side a reasonable amount of time to perform. So before assuming an expired closing date has killed the deal, read the contract. If time was never made of the essence, the agreement may still be alive.
Who Keeps the Earnest Money
The earnest money deposit, typically 1% to 3% of the purchase price, sits with a neutral third party such as a title company or escrow agent. When the contract falls apart, the fight is usually over that money, and the answer depends on who caused the failure and what the contract says.
If the buyer failed to perform, the seller usually has a claim to the deposit. A buyer who couldn’t secure financing by the deadline, for example, may forfeit the deposit unless a financing contingency was still active and properly invoked. If the seller caused the problem, such as failing to deliver clear title or refusing to make agreed-upon repairs, the buyer gets the deposit back.
In practice, the escrow agent usually won’t release funds to either side without written authorization from both parties, a court order, or a mediation or arbitration outcome if the contract requires it. When one party thinks they’re entitled to the money and the other disagrees, the deposit can sit frozen for months. Some contracts include a dispute resolution process for exactly this situation.
Extending the Agreement Before It Expires
If both sides see the closing date approaching and know they won’t make it, the simplest fix is a written extension signed before the deadline passes. It’s usually handled through a closing date extension addendum that references the original contract and sets a new closing date. Both parties sign it, and all other terms of the original agreement stay intact.
A few timing traps push closings past their scheduled date through no one’s fault. Lenders are required to provide borrowers with a Closing Disclosure at least three business days before the closing date.1Consumer Financial Protection Bureau. TILA-RESPA Integrated Disclosure FAQs If something changes in the loan terms that triggers a new disclosure, such as a significant change in the annual percentage rate or the addition of a prepayment penalty, the three-day clock resets.2eCFR. 12 CFR 1026.19 – Certain Mortgage and Variable-Rate Transactions A closing that looked achievable can suddenly become impossible.
Federal bank holidays create a related problem. Wire transfers and ACH payments aren’t processed on Federal Reserve holidays, and when a holiday falls on a Thursday or Friday, funding can slip into the following week. If your closing sits near Thanksgiving, Christmas, or a long weekend, build in a buffer when negotiating the extension.
Starting Over After the Agreement Has Expired
Once a purchase agreement has expired, there’s nothing left to amend. An addendum modifies a living contract; it can’t resurrect a dead one. If both parties still want to proceed, they have to execute an entirely new purchase agreement with fresh terms, a new closing date, and updated contingency periods.
This isn’t a technicality. Market conditions may have moved since the original contract, and a new agreement gives both sides the chance to renegotiate price, repair credits, or other terms. The seller has no obligation to honor the previous price, and the buyer has no obligation to waive contingencies they had waived before. Everything is back on the table.
When Force Majeure Changes the Answer
Some purchase agreements include a force majeure clause that pauses or extends deadlines when events beyond either party’s control prevent closing. These provisions typically cover natural disasters, government-ordered quarantines, declarations of war, and similar extraordinary circumstances. The event must actually prevent performance, not just make it inconvenient. A hurricane in the forecast doesn’t trigger the clause; a hurricane that shuts down banks, title companies, and utilities in the area does.
The party invoking force majeure usually must notify the other side promptly and show there are no reasonable workarounds. When the clause applies, neither side is liable for failing to close during the event, and the deadline typically extends by the length of the disruption. Not every purchase agreement includes this protection, so check the contract before assuming you’re covered.
Contingency Deadlines Are a Separate Problem
One boundary worth flagging: expiration of the overall closing date is not the same as missing a contingency deadline. Contingency deadlines protect the buyer’s right to back out over specific issues like financing, inspections, or appraisal. If a contingency deadline passes without the buyer acting, that contingency is typically waived, and the buyer loses the right to cancel over that issue, but the contract itself continues. Expiration of the closing date, depending on the contract language and whether time is of the essence, can terminate the entire agreement at once.
Tax Consequences If the Deposit Is Forfeited
Losing or keeping an earnest money deposit has tax implications that catch people off guard.
For buyers, a forfeited deposit on a personal home purchase is not deductible. Federal tax law limits an individual’s deductible losses to those incurred in a trade or business, in a transaction entered into for profit, or from certain casualties.3GovInfo. 26 USC 165 – Losses Losing your earnest money on a home you were going to live in doesn’t qualify. If the property was an investment, the forfeited deposit may be deductible as a capital loss on Schedule D.
For sellers, a retained deposit is treated as ordinary income rather than a capital gain. Because the seller keeps both the property and the money, no sale or exchange has occurred. The forfeited deposit is classified as liquidated damages and taxed at the seller’s ordinary income rate, which is typically higher than the capital gains rate. Sellers pocketing a substantial forfeited deposit should plan for the tax bill.
The Broker May Still Be Owed a Commission
An expired purchase agreement doesn’t necessarily wipe out the real estate agent’s claim to a commission. Most listing agreements include a protection period, sometimes called a safety clause, that extends the broker’s right to a commission for a set time after the listing agreement ends. If a buyer who was introduced to the property during the listing period ends up purchasing it after expiration, the broker may still be owed.
The length of the protection period varies and is negotiable, sometimes 30 days, sometimes 90 or 180. The purpose is to keep sellers and buyers from waiting out the listing agreement to avoid the commission and then closing once the broker is out of the picture. Even without a protection clause, a broker who can show they were the procuring cause of the sale may have a legal claim. If your purchase agreement expired and you’re thinking about approaching the same property with a different agent or no agent, review the original listing agreement first.
Don’t Try to Close on a Handshake
Sometimes both sides know the contract has expired but try to push the closing through on a verbal understanding or an email exchange. Under the Statute of Frauds, which exists in every state, contracts involving the sale of real property must be in writing to be enforceable.4Legal Information Institute. Statute of Frauds A verbal agreement to continue on the same terms carries no legal weight.
Without a valid written contract, nothing is enforceable. The price, the contingencies, the closing date, the repair credits, all of it exists only as mutual hope. The seller could demand a higher price on closing morning. The buyer could walk away with no consequences. Neither party has a clear path to force performance or recover damages. If you’re past the expiration date and still want to close, execute a new written agreement first. The cost of drafting one is trivial next to the risk of proceeding without it.