Headache! House closing in one week but Reno won't finish by then

[Peace Lily]

Dear BP members - My house is closing in one week but the Seller-paid contractor renovation possibly won't finish by the closing date. What should I do? The RE agent said that "we could close(change heating units) and money to pay contractors to be held in escrow until work is completed. Attorney should hold the agreed amount until work is completed and then release it to contractors when they finish."  Question: would that be potentially a problem? What if the mortgage bank don't like that idea? Should I postpone the closing date till they complete the work? Please advise. Thank you!