Sometimes in a home sale, the buyer asks to take possession of the property before closing. Most real estate agents discourage this practice because it’s risky for the seller. If you decide to allow your buyer to take early possession, you must protect your interests. Here’s what you need to know.
Potential problems with early possession
Until a home sale is officially closed and funds are exchanged, the house still legally belongs to the seller. If you let the buyers move into the property before it legally belongs to them, a lot can go wrong.
Keep in mind that home sales sometimes fall through before closing. This can happen when the buyer is unable to get final approval on their mortgage because the home appraisal comes in too low or for some other reason. The buyer may not be satisfied with the seller’s repairs of deficiencies found during an inspection. A lien, encroachment, or easement issue that can’t be resolved might be discovered during the title search. Several issues can torpedo a deal before closing, and if one of them happens and the buyers have already moved in, getting them to leave becomes dicey.
Letting buyers have early possession also gives them the chance to decide they don’t like the house and break the deal. The buyer may start demanding the seller make more repairs than were initially agreed upon after the inspection or begin making renovations on the property before their ownership is official. If the current owner doesn’t approve of the renovations, things can get messy.
Additionally, letting the buyer move in before the sale has officially closed and you are freed of your mortgage obligation on the home can be costly for you. You must have a place to move to before the deal closes, which means you have to legally commit to another mortgage or rental. You will be obligated for those costs while still paying on your old mortgage even though you’re not living in the house.
Is it any wonder most real estate agents strongly advise against giving buyers early possession?
Put ironclad protections in place
If you as a seller agree to let your buyer take early possession of the home despite these potential problems, be sure to protect yourself with a written lease that governs the relationship between you and states what happens if the buyer must be evicted.
You can draw up a lease agreement either as an addendum to the sales contract or as a separate agreement. It’s important to consult an attorney as to what the lease should cover and what language should be used.
The lease should address at least the following topics.
- The agreed-upon daily rate the buyer will pay the seller, as well as how it will be paid.
- The responsibilities of each party.
- What happens should the buyer want to make changes to the property before closing. Such changes should only be allowed with the seller’s prior written approval.
- What happens if the closing is delayed or never happens, including how soon the buyer must vacate the property and the consequences of not doing so.
Bottom line: It’s risky for home sellers to allow buyers to take possession before closing. But if you as a seller decide to take the risk, do so with your eyes wide open and legal protections in place.
Related – How to Navigate a Contingency Offer