Buyer Possession Before Closing
When a Buyer Takes Early Possession of a House
Possession of a home typically transfers from seller to buyer at the time of closing, but sometimes a homebuyer will ask the seller to grant early possession before closing occurs. Buyers usually make this request because their apartment lease has ended or their old home has already sold, and they need a place to live immediately.
Sellers make the final decision as to whether an early possession makes sense for their transaction, but most listing agents discourage such situations because too many things can go wrong.
Mortgage Underwriting Problems
The sale might end up falling through for some reason, often due to a mortgage underwriting problem. The homebuyers' loan may not be approved even after a thorough review of their documents.
The listing agent is back to square one should this happen, trying to find another buyer for the home, but with an unwanted tenant in residence—the first buyer.
The former buyers would voluntarily vacate in a perfect world, but some agents have found out the hard way that homeowners often have to take legal action to remove them from the premises after a sale falls through.
The buyers might think that the house is already theirs, and they might begin to make changes that are unacceptable to the owner. Homeowners can be stuck with the improvements if the house doesn't close, or they'll have to spend money to put things back to the way they were before.
The Repair List Starts Growing
Buyers might start making lists of extra repairs they want to see completed before closing. Most often, these aren't genuinely necessary fixes. They're simply things the homebuyers would like to see changed.
This can be especially frustrating if the transaction has already gone through the inspection and repair process. Sellers should be sure to stipulate before the buyers move in early that any and all repairs are spelled out in the contract and have already been agreed to.
Get a Written Agreement
Early buyer possession should be handled with a written lease agreement that's separate from and in addition to the purchase agreement.
The lease agreement should describe the duties and responsibilities of both parties. Real estate agents can provide a standard contract addendum that covers early buyer possession, but an attorney can draft the document if either party prefers that, and sometimes having a separate lease can be preferable.
It's typically much easier and less costly for sellers to evict a "tenant" under the terms of a lease than to evict a buyer in possession under the terms of a purchase agreement addendum.
Considerations for Early Buyer Possession Agreements
Wording should include details about what will happen if the sale doesn't close on time—or if it never closes. Determine how much time the buyers have to vacate, and set forth what will happen if they don't.
Sellers can charge pro-rated rent for the days the buyers spend in residence before closing. They should state how much the buyers will pay and when they money is due. They should include terms for a security deposit, if applicable, and decide whether to include utilities in the rent, or whether the buyers will transfer the utility accounts into their own names.
Buyers should agree in writing that they won't modify the home without the consent of the owner, or that they'll pay to return the home to its former condition if closing doesn't take place.
Buyers are typically responsible for trash removal, and they should coordinate landscaping responsibilities with the seller if they're not provided by a homeowner's association.
The seller still owns the home, so insurance for the structure remains their responsibility. Buyers should insure their personal items, however.
Buyers should not be allowed to sublet the house.
The Bottom Line
Many listing agents are vehemently opposed to early buyer possession because it gives buyers too much time to poke around the house and rethink the purchase. They might notice things that they previously overlooked and that they now decide they can't live with.
These things are best discovered after closing the sale, not before. Buyers can often cancel before the sale closes.
Sellers should run a thorough background check on their buyers before agreeing to early possession, and both home sellers and buyers should consult with their attorneys before signing any binding agreements.
Edited by Elizabeth Weintraub. At the time of writing, Elizabeth Weintraub, CalBRE #00697006, is a Broker-Associate at Lyon Real Estate in Sacramento, California.