Nicole Mazzola

858.775.0328
nicole@aare.org

1020 Prospect Street #350
La Jolla, CA 92037

Why Sellers Should Never Let Buyers Take Early Possession

September 6, 2018

It’s not very common, but it can and does happen from time to time: buyers will sometimes ask sellers if they can move into the home early before the actual closing date arrives.

For buyers, they get to haul in all of their belongings and start using the place as their home, which is especially helpful if the closing day of the home they just sold has already come and gone.

But what about sellers? This doesn’t exactly seem like the ideal scenario for them, for obvious reasons. Unless they’re collecting rent from the time the buyers move in until the day of closing, there’s little incentive for sellers to allow buyers to move in early.

There are certainly some risks associated with letting buyers take early possession, which is why you shouldn’t agree to this arrangement.

The Buyer is Unable to Close

When you allow a buyer to move into your home early, you’re counting on them to close on the deal. Of course, this is exactly what should happen with every real estate transaction, but deals fall through every day for one reason or another.

Maybe the buyer couldn’t secure financing, or perhaps they weren’t satisfied with what the home inspection revealed. Whatever the reason for the buyer being unable to close, you’ve now got a situation in which you’ll have to basically evict the buyer who shouldn’t have been living in the home in the first place. Evictions processes are time-consuming and expensive, only to leave sellers right back at square one relisting their homes.

The situation can get even stickier if the buyer started to make improvements on the home. Whatever money they dished out to make these updates could cause problems because the buyer could potentially file a mechanics lien against your home for work they did and paid for.

Repair and Maintenance Responsibilities May Be Blurry

As the rightful owner of the home, you are technically still required to maintain the property and tackle any repairs as necessary. But this can be a bit of a cloudy situation if the buyer is the one causing certain damage to the property and should technically be picking up after themselves while they’re living there.

Should you ask the buyer to deal with repairs and general maintenance after they move in? If the buyers do take early possession, a separate lease agreement should be in place that would detail who’s responsible for what. Even still, disputes can always arise.

Insurance Policies May Not Provide Coverage

Homeowner’s insurance is necessary for all homeowners, but the buyer’s policy won’t take effect until after the deal closes and the property is legally owned by the purchaser. Until then, the policy still in effect is that of the seller. But will such a policy cover certain issues that occur when buyers move in early?

For example, what if a contractor hired by the buyer to do some work injured themselves while on the property? Who is liable? The buyer – who is currently living in the home and hired the contractor in the first place – or the seller, who is still the rightful owner of the property?

Things can get really messy when it comes to insurance and liabilities when a buyer is permitted to take possession of a home before the names on the title have changed. If anything, the seller’s insurance policy claim history will be affected, which will increase premiums.

Buyers Are at Risk Too

Allowing buyers to move into a home before the deal closes has its obvious risks for sellers. But buyers could be at risk as well.

For instance, if there are any title issues that have yet to be resolved, buyers might find themselves with more problems than they may have initially anticipated. They’ll have to deal with any number of clouds on the title, such as liens, judgments, and anything else that can taint the title.

And if buyers discover any issues with the property long after they’ve moved in but before the deal closes, they don’t have as much negotiating power.

The Bottom Line

The potential for issues to arise when a buyer takes early possession is real. It’s simply not worth the risk, and sellers should avoid getting caught up in these situations. The only time a buyer should take possession of a home is when the deal goes through and title of the property legally changes hands.