COE +2 or +3 are not uncommon, however it does cause additional stress for the buyer. If the added days were not part of the original agreement but was offered up in the final weeks, I would have heartburn, as should the bank with the short sell. I would be surprised if the bank allowed it to occur, once an approved short sale, it is their transaction.
In any situation where keys are not transferred at close of escrow, a penalty should be in place that is enforceable by minimal effort. I have used $100 per day or more if they are not 100% out at the terms of the agreement. I am far less comfortable giving additional days on a short sale because of the length of the entire process. A standard sale however could mean that the listing party is also purchasing another property, and timing is important when it comes to escrows and moving companies. Flexibility in that case can make your offer the winning offer.
What does your contract say regarding possession? Everything should be in writing, so follow the contract.
BTW, it is common in my practice to give the seller 3 days after COE to move out. In most short sales, the seller is getting some relocation $$, and often they need that to pay for a truck, use as a security deposit on the rental, etc.
Have you done your final walk thru yet? Did it look like they were packing up?
If your contract states possession to occur no later than 5pm on date of close of escrow and you don't want to give them the additional 3 days, you don't have to - they signed the contract. However, if you want to give them the 3 days, make sure you do it in writing (Addendum to Purchase Contract) and include that any days after that will be $XXX per day for rent. You may not want to do this if you don't think they're going to move and you don't think they will pay the per diem rent anyway. You should talk to your agent and see what they suggest? What is their reason for needing the addtional 3 days and is it reasonable?