Can the Buyer move in early? The Closing is only a week away. The house is vacant. Inspections have been completed, the loan is approved, everything else is in order. The buyers moved out of their previous home last week; they are staying in a hotel. All of their belongings are in a moving truck. The Buyer wants to move into the house early.
What can be the harm?
When this question is posed to a Seller, a flashing red light and an alarm should go off. "Early Possession" might result in serious legal and financial problems for both the Buyer and the Seller (and the real estate Brokers involved in the sale).
If the parties agree to let the Buyer take Early Possession (also known as Occupancy Prior to Closing), you should see a real estate attorney for legal advice. More on that in a moment...
Here are some potential "Worst Case Scenarios" that could occur if the Buyer moves in early:
1. Buyer Damages the House
The wife drops a heavy cast iron pan into the white porcelain kitchen sink, creating a large chip. At the same time, the husband is backing the car up the driveway. He accidentally crashes into the exterior of the house, causing serious damage.
Who pays for these repairs? Will the Seller's insurance cover it? If it does, who pays the deductible? What if the Buyer says, "We don't want to close until these things are repaired", and no contractor or repairmen is available before the scheduled closing date?
2. Buyer's Remorse
It seemed like the perfect house when the Buyer made the offer. But now that they have moved in, the Buyers realize that they don't like the floor plan. Or, they were not aware that you could hear the rumbling sound from the highway that is just over the hill. They call their real estate agent and say, "Uh... we have changed our mind. We don't really like this house after all. Tell the Seller that we want to back out of the contract."
3. Buyer Gets Injured
Little Timmy is excited to climb the oak tree in his new backyard. About halfway up the tree, Timmy loses his grip and falls to the ground, resulting in a broken leg. There will be costs for the ambulance, the emergency room, the orthopedic surgeon, the pediatrician, the radiologist, etc.
Who is responsible for those costs? Will the Seller's homeowner's insurance cover it? The Buyer doesn't have insurance on Little Timmy. Nor does the Buyer have homeowner's insurance in their name, since they have not taken title to the house (the deed is not yet in their name). Who will be liable?
4. Buyer Finds Something Wrong with the House
"We had the Home Inspector and read his report, but he didn't say anything about this kitchen appliance not working right. The Seller needs to fix that, or else get us a new one." The real estate agent reminds them that they did a Final Walk Through inspection. The Buyer responds, "Well sure, but our contract says that the Seller warrants the appliances. Since it is still their house, they need to fix it".
5. Liability for Personal Property
An unexpected hurricane is forming in the Gulf of Mexico (e.g., Hurricane Michael, October 2018). Two days later, it blows through town. A tree falls on the garage, cracking the roof. Eight inches of rain pour down on the Buyer's furniture and unpacked boxes that are in that garage, ruining most of it. Who is financially liable, the Seller or the Buyer?
6. Buyer "Remodels" the House
The Buyers plan to renovate the kitchen. Why not get an early start? "Let's go ahead and remove these counter tops, and take down these cabinets". When/if the sale falls through, the Seller gets back a damaged house that will cost money to repair.
7. The Loan is Denied.
The Buyer goes shopping for a new car; they are just looking, but the Car Salesman makes them an incredible offer. They purchase the car. The Lender sees the new monthly car payment on their credit report. The Lender calls the Buyer to inform them that, "The additional payment has exceeded your debt-to-income ratio. You no longer qualify for the mortgage loan. Sorry."
8. Wire Fraud
The Buyer wires the the funds due at closing to a scammer in Eastern Europe who is posing as the Title Company. The funds cannot be retrieved. The Buyer has no more money. They cannot buy the house.
What Should You Do for Early Possession?
See a Real Estate Attorney
The lawyer may draw up two separate documents: (1) The Contract for Purchase and Sale, and (2) a Residential Lease. The lawyer may advise the Seller to contact their insurance agent, to change their policy from owner-occupant to landlord-tenant. The lawyer may advise the Buyer/Tenant to get renter's insurance.
Speaking of Lawyers
As a Broker, the author of this article wants his own attorney to prepare a disclosure advising the Parties of the inherent risks in "Early Possession", and a disclosure that must be signed by the Parties that releases the Broker(s) from any liability resulting from Early Possession!