Early Possession – Is It a Good or Bad Idea?
In a perfect world, moving into a new home is seamless for both the Seller and Buyer, and possession of a home typically transfers from the Seller to Buyer at closing.
But, when you factor in such events as the Buyer also selling a home or ending a lease before the settlement date, or the Seller building a new home that isn’t quite ready, Early Possession can make sense as an option.
Early Possession of a home can happen when either the Buyer asks the Seller to grant Buyer Possession before closing, or when the Seller asks the Buyer for permission to stay past closing. This is also known as Possession by Seller and needs to be granted before settlement. Before you sign any paperwork for Early Possession, it’s a good idea to consult with your closing attorney and insurance company to discuss the ramifications.
If a Seller does agree to Early Buyer Possession, it should be handled with a written agreement that describes the duties and responsibilities of both parties. Real estate agents can provide the standard contract addendum that covers Early Buyer Possession.
Timing
Timing your move out of one house and into another is a delicate feat. In addition to the usual stress of packing and arranging to have your things transported, you also need to coordinate with the current owners of your new home and the incoming residents of your current home.
And since no one wants to pay another month’s rent or mortgage, it’s awfully tempting to move into your new place even if the closing isn’t quite final yet.
But taking Early Possession of a home before your name is on the title could cause quite a few problems — for Buyers and Sellers.
Considerations for Early Buyer Possession Agreements
Sellers and Buyers, with the help of their agents and closing attorneys, should check out the wording carefully. It should include details about what will happen if the sale does not close on time — or never closes. How much time do Buyers have to vacate? What will happen if they don’t? How much rent will the Buyers pay and when is it due? Do you want a security deposit?
Buyers should agree they will not modify the home without the consent of the Seller. If closing doesn’t take place, Buyers should pay to return the home to its former condition.
Decide whether to include utilities in the rent, or whether to have the Buyers’ transfer the accounts into their names. Buyers are typically responsible for trash removal and should coordinate landscaping responsibilities with the Seller if they’re not provided by a homeowner’s association.
Sellers still own the home, so insurance for the structure is the Sellers’ responsibility. Buyers must, however, insure their personal items, and should not be allowed to sublet the house. Standard forms usually include a statement releasing Sellers from liability if something adverse happens to Buyers before closing, and state whether pets will be allowed.
Why Sellers face risk, too
Sellers who hand over the keys before closing could also be in trouble if the deal falls through. If something happens and a Buyer backs out last minute, Sellers could face the costly and lengthy process of eviction proceedings. Not only is that a hassle, it will delay the ability to relist the home.
Sellers also run the risk of having their home insurance claim history dented.
If the Buyer’s movers damage the house, or if their friend slips down the stairs while helping out, the Seller is liable. Insurance covers this kind of damage and injury (to the extent dictated by the policy), but the fact that a Seller has had to file a claim could jack up the premium for the policy on their new home.
Why Buyers should move in with caution
A home inspection will determine if there are any issues that need to be resolved before closing. If these haven’t been resolved, and the Buyers move in before they are, Buyers might also lose the leverage necessary to clear other issues like judgments, liens, and even old mortgages, since they will have a much harder time walking away once their possessions are in the house if these title issues are not resolved.
Buyers also lose the ability to voice concerns or negotiate over any last-minute issues with a home’s condition, especially after the final walk-through, which is typically done right before signing the paperwork.
The question of who pays for what also comes into play. If a Buyer moves in early, the Seller might expect them to pay for utilities used before the closing. Even if that doesn’t amount to much, the squabble could delay closing.
Another concern: coverage in the event of theft, fire, or other calamities. A home insurance policy on a new home doesn’t take effect until closing, and a property is legally in the possession of the Buyer.
So, any damage that happens to the structure is covered by the Seller’s home insurance, but that doesn’t include damage to, or loss of, personal property.
Such damage or loss, however, could be covered if the Buyer has a homeowners insurance policy on their current home that has “off premises” property coverage. The coverage limit, however, is usually 10% of the total personal property limit.
Early Possession Pitfalls
Sellers make the final decision as to whether an Early Possession makes sense for their transaction. Listing agents, however, discourage such situations because too many things can go wrong.
The sale might fall through due to a mortgage underwriting problem, meaning the Buyers’ loan can’t be approved even after a thorough review of their documents. Should this happen, the listing agent is back to trying to find another Buyer for the home, but this time with a renter in place.
In a perfect world, the former Buyers will vacate, but agents have found out the hard way that Sellers sometimes have to take legal action to remove former Buyers now turned tenants.
Buyers might feel the house is already theirs and begin to make changes — maybe changes the Seller wouldn’t appreciate. If the house doesn’t close, the Sellers may be stuck with the Buyers’ “improvements”.
Buyers might also start making lists of extra repairs they want to see completed before closing. Most often, these aren’t genuine repairs, they’re simply things the Buyers would like to see changed. This can be especially frustrating if you’ve already gone through the inspection and repair process.
Worst case scenario: Buyers may trash the house.
Too much time to think
There are times when Early Buyer Possession before closing can help both parties.
If you, as the Seller, feel it’s a good move, simply proceed with caution. Background check your Buyers as thoroughly as possible before you agree.
As noted, many listing agents are strongly against Early Buyer Possession as it also gives Buyers too much time to poke around the house, to think about the purchase. They might notice things that they previously overlooked, with so much time on their hands. Things that now they cannot stand to live with.
From a listing agent’s perspective, those things are best discovered after closing the sale, not before, because, before the sale closes, Buyers can often cancel. Before deciding on Early Possession, speak with your Solutions agent and find out more.
