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Real Estate Jargon: “Closing and Possession” Explained

By
Real Estate Broker/Owner with Cordon Real Estate 01370983

Real Estate Jargon:  “Closing and Possession”Buyers, sellers, investors, welcome back to another installment of Real Estate Jargon, aka, simple explanations of sometimes confusing real estate terms.  Today, we’ll look at an important feature of real estate contracts that determines when you actually get the keys to a new home: “closing and possession.”

Buyers and sellers often assume that in a real estate sale “closing and possession” naturally occurs at the same time.  This is not always true, so let’s look at why and what options could be available for different situations.  We’ll assume that our example sale takes place in California and that we will be using standard California Association of REALTORS® (CAR) forms for the purchase contract.  If you’re not in California, please just try to follow the key concepts.

First, we need to understand the individual terms “closing” and “possession.”  Closing occurs when the deed transferring ownership is formally recorded (or “filed”) by the County Recorder in the county where the property is located.  When the escrow officer handling our sale receives confirmation that the deed has been recorded, they complete the associated funds transfers and paperwork and the transaction is said to be closed.  Ownership has now changed from the seller to the buyer, but the buyer may not be able to move in yet.  Change of possession takes place at the date and time specified in the purchase agreement.  Closing and change of possession usually take place at the same time, but maybe not.  Our standard real estate purchase agreement provides options if we need them.

In Paragraph 5 of our Residential Purchase Agreement (CAR Form RPA-CA), titled “Closing and Possession”, subparagraph B states that, unless otherwise noted, possession will occur on the same day as closing.  But it goes further to provide fill-in blanks if buyer and seller want to schedule change of possession for another date and time:

“B. Seller-occupied or vacant property: Possession shall be delivered to Buyer at 5 PM or (blank time), on the date of Close Of Escrow; (or) on (blank date); or no later than (blank days) Days after Close of Escrow…”

Why would a buyer not take possession immediately when ownership has changed?  There could be several reasons:

·       A tenant is occupying the property until the end of the tenant’s lease.  In this situation, the terms possession and occupancy basically mean the same thing.

 

·       The seller needs to remain living in the school district until the end of the school year, so buyer and seller agree to close escrow in 30 days, but change of possession will occur on the last day of the school year (a specific date).

 

·       The seller needs to complete the sale of this home before they can start looking for another, so buyer and seller agree to a six month lease-back to give the seller that time.

 

·       Etc. etc. etc.

 

When buyer and seller agree to delay change of possession, an amendment to the purchase agreement is usually prepared to support what is reflected in Paragraph 5.B.  The amendment could describe the amount of rent to be paid and other general conditions of occupancy that will be in place until the change of possession occurs.

I hope you found this information helpful.  If you have questions about real estate jargon or real estate buy/sell/investment strategies, drop me a line!  john@jsrealproperty.com

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John A. Souerbry & Associates (DRE 01370983)  www.jsrealproperty.com

Comments (3)

Carol Zingone
Berkshire Hathaway Home Services Florida Network Realty - Jacksonville Beach, FL
Global Realtor in Jax Beach, FL - ABR, CRS, CIPS
John - we need to cease using jargon, and use terms the party we represent understands without translation.
Feb 23, 2013 11:11 PM
John Souerbry
Cordon Real Estate - Fairfield, CA
Homes, Land & Investments

Carol - I understand what you're saying, but when jargon is embedded in our forms it's impossible to get around.  99% of the time when clients ask for an explanation of a term, it's one they found in the contract, not a term I've spoken to them.  It's the legal nature of this business.

Feb 23, 2013 11:36 PM
Rob D. Shepherd
RETIRED - Florence, OR
RETIRED

Around here the buyers get confused that Escrow signing is NOT Closing. I have seen many sign with a loaded truck out front and want the keys. Even tho this was explained "upfront".

Feb 24, 2013 12:46 AM