Residz Team 5 min read
Home buyers will often ask if they can move in early to their new home. They’re excited, they’ve got the champagne, and it can be a huge help to them, so sellers often feel obliged to say yes.
Yet some estate agents, including Marsha Gray in the U.S., are not a fan of sellers allowing buyers to get early access to their newly-purchased home.
“Many dramas have occurred,” she writes in the Santa Barbara Independent.
“Here is just one I recently heard about. The buyer took early possession and immediately started his remodelling project. He tore down the garage. No permits or building contractor involved. His loan fell through. The buyer moved out and the owner was left with a mess.”
Before a home seller agrees to a request for early possession before settlement, they should understand the potential disadvantages. In this blog, we’ll look at both the advantages for buyers and the drawbacks that sellers may face, including legal and financial risks, potential property damage, and difficulties in reclaiming possession.
What is “early possession”?
“Early access”, “early possession” or “prior possession” of a property by a buyer is when the buyer gets the keys to the property after the contract is signed but before settlement is finalised (usually 30 to 90 days afterwards).
What are the main advantages for home buyers?
KDD Conveyancing Services says the main advantage to buyers are:
The case for allowing early access
Convenience and Flexibility
Allowing the buyer to move in before closing can be helpful to the buyer, and convenient for both parties.
The buyer may have sold their previous property or is in need of immediate housing due to personal circumstances. Granting pre-possession can help avoid the logistics of moving twice, creating a smoother transition for the buyer.
Financial Incentives
KDD Conveyancing says the advantage for sellers granting early access is the extra income coming to them from the day the buyer occupies the property to the settlement date. With rising interest rates, this is an opportunity to offset mortgage payments or costs associated with the sale.
A seller who allows early access can negotiate terms, such as rent or compensation, during the interim period. This arrangement can also provide financial relief to the buyer, who may have already allocated funds for the purchase, down payment, and moving expenses.
Property Maintenance
With the new buyer happily moved in, the property is likely to receive ongoing care and maintenance right up to the settlement date. The buyer is likely to have a vested interest in protecting their investment and could address any issues promptly, preventing potential damages that could occur if the property were vacant.
The case against allowing early access
Legality Services strongly urges buyers not to enter into a “handshake deal” to take early possession of the home in order to move furniture and other possessions in before making settlement.
Even if they want to start painting, cleaning or making improvements, this arrangement complicates things.
Buyers may notice problems
Given the opportunity to access the home before a sale allows the buyer to discover problems within the home that they may not have been aware of, warns Legality Services.
If they find that there are repairs that are needed or items that they find unacceptable, they can potentially try to renegotiate the sale price, withdraw from the deal, or demand that repairs be made before the deal is completed.
However, that’s not the only issue….
The seller is still living in the home
If the buyer pushes for early possession, but the seller is still living in the home, this may create problems and stress for the seller. They may not have settled on their own new place or have found a property to rent.
In at least one case this caused problems for the buyer….even after settlement!
According to the New York Times, some years ago Manhattan real estate lawyer Lisa Urban handled a closing on an all-cash purchase of a loft in a TriBeCa co-op on Franklin Street. Ms. Urban, who represented the buyer, said the deal had been going smoothly until she asked the seller for her keys to the apartment.
"She said: 'Keys? I didn't realise I had to move out,"' Ms. Urban said. "We knew she was a little bit odd."
The responsibility is still the seller’s
In the case of early access, the seller still owns the house, and the legal title and responsibilities do not fully get passed to the buyer until settlement is completed. Early possession does not mean that the seller gets settlement money early.
Without proper licensing terms, rental agreements, or early occupancy agreements in place, the seller may be liable for damage incurred by the early occupancy of the buyer, as the seller is still the owner of the property until settlement.
The buyer might not move out
If settlement does not proceed as planned, it may be difficult or costly for the seller to get the buyer to vacate the property. Legal action may be needed in some cases.
The buyer might lower the value of the property
As we saw in the example at the top, when the buyer tore down the garage and began renovations, there is a risk of the property incurring major damage during the buyer’s occupancy.
If the property needs to be put back on the market (once the would-be buyers have left the property) the value might be greatly reduced.
As well, allowing occupants before closing poses a risk of wear and tear and potential damage - any such issues may lead to disputes over the property's condition, potentially affecting the final purchase agreement.
Legal and financial risks
One of the primary concerns for sellers is the potential for legal and financial complications.
If the buyer defaults on the purchase agreement during the early access period, it can be challenging to reclaim possession of the property. This situation could lead to legal disputes, delay the sale process, and cause financial strain for the seller.
Insurance and Liability
Allowing a buyer to move in before settlement may raise insurance and liability issues.
As Legality Services says, the insurance remains with the seller until the home sale is complete.
This includes responsibility for anybody who is assisting with the move into the home, theft of any of the buyer’s belongings that are in the home, and damage caused by fire, storm or other disaster.
Negotiating early possession
Paul Carazza, Principle of Independent Property Group, says if you are a home buyer negotiating early possession, you need to agree:
According to Budget Direct, property experts recommend buyers do not plan to move in on settlement day in case settlement is delayed a day or two.
“If you’re a seller moving to another home that settles the same day, it’s recommended you also have back-up accommodation elsewhere in case of delays.”
Summary
The decision of whether to allow a home buyer to move in before closing involves careful consideration. There are potential benefits, such as convenience and financial incentives, but there are significant risks, including legal and financial complications, insurance and liability concerns, and potential property damage.
Ultimately, it is crucial for sellers and buyers to thoroughly discuss and negotiate the terms of an early access agreement, seeking legal advice if necessary.
Clear and comprehensive documentation outlining responsibilities, liabilities, and contingencies can help mitigate risks and ensure a smooth transition for both parties.
Photo by Erda Estremera on Unsplash