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Problems That Could Arise if Buyers Move in Before Closing

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Usually, buyers move into a home they purchased only after escrow closes, but there are times when buyers get possession of the home before closing. While not very common, buyers who ask to move into the home before closing might have a variety of reasons to do so. Perhaps their home has sold and is closing shortly, or maybe they’ve been renting and their lease is expiring soon. In these cases, they’re going to need a place to live before they vacate their home or apartment.

It’s not difficult to see how this situation can become problematic. After all, buyers are not yet on title when the home is in escrow, and are essentially living in a home that’s not yet theirs. If a seller agrees to allow a buyer to move in before closing, both parties need to be aware of the potential issues that could occur in this impractical situation.

Here are some potential downfalls that can be faced with early buyer possession from the perspective of the seller.

The Closing Could Take a Lot Longer Than Anticipated

There could be any number of reasons for a delay in closing. In the meantime, the proceeds of the sale are still stuck in escrow that the seller could be using to put towards the new mortgage. Whether there are issues with title that need to be dealt with, additional documents that the lender needs before financing goes through, or problems with the appraisal, any delays in closing can leave sellers concerned about whether the deal will close at all, while strangers are living in their home. 

The Sale Falls Through

While the majority of real estate deals close escrow successfully, there are times when sales fall through. It could be that the buyer is unable to secure financing, or perhaps there are problems with the closing documents.

If this happens, not only are sellers in the position to have to start marketing the property all over again, they also have to contend with buyers that now must vacate the premises that they believed was already theirs. In the meantime, they could have made changes to the home, or may have even trashed the place after learning the deal was dead.

The costs associated with fixing up the house before listing it can be pretty high. The carrying costs of the home, including mortgage payments, insurance, taxes, maintenance, can also add up. In addition, the home might not even sell for the same amount compared to the first time around if the market has changed since then.

Defects Are Discovered That Could Deter Buyers From Going Through With the Sale

Sometimes issues with a home are not noticed by buyers during scheduled showings. That’s why home inspectors are brought into the picture in order to uncover potential issues, but it’s not inconceivable for problems to be discovered until after buyers move into the home.

It’s possible for buyers to find out about certain defects in a home after they’ve moved in. Whether the seller was unaware of the issues or simply did not disclose them, such defects can turn buyers off to the point that they may decide to cancel the deal (if the necessary clauses are inserted in the contract) and request to have their deposit returned.

The Buyers May Make Additional Requests Before Closing

If buyers want any repairs rectified before closing, these should typically be listed in the original purchase agreement. However, it’s possible for buyers to add to this list after they’ve moved in and taken a closer look at the home. Most of the time they’re minor issues that the buyers simply just want to see changed, which can be really annoying if there was a home inspection and the repair process has already been discussed.

Insurance Coverage Could Be Unclear

If all goes well, there will be no need to have to make an insurance claim. But what if something happens that warrants a call to the property insurance provider? Who is responsible if the home is damaged or someone gets hurt on the property while the buyers are in possession? Is it the buyer, who’s living in the home, or the seller, who technically still owns it? Things can get really complicated when it comes to insurance coverage on a home that’s under one person’s name with the soon-to-be owner already living in it.

The Bottom Line

A buyer moving into a home before closing is certainly not an ideal situation, but if it does happen, it should only be carried out after both parties have spoken with their respective real estate agents or lawyers.

A written contract should be drafted to specifically detail the terms of this agreement. It should include a per diem fee that the buyer would have to pay the seller for every day that they are living in the home to cover costs until escrow closes, as well as stipulations about how and when the deposit will be returned if closing doesn’t go through. Buyers should also have their own liability insurance in case of any incidents that might happen during the early occupancy period. Real estate professionals can provide a contract addendum that deals specifically with early buyer possession.