BOTTOM LINE UP FRONT – The following information serves purely as a summary in layman’s terms and is not a substitute for professional legal advice. Consult an attorney for the most up-to-date information. In our area, we get a lot of military members that come to town frantically looking for a home and a temporary place to stay while waiting for the buying process to go through it’s progression all the way to closing. If done correctly, there can be opportunity to take possession of the home early. This is a brief summary of “Buyer Possession Before Closing” done correctly.
Buyer Possession can be a scary thing for a seller that typically assumes the worst-case scenario. However, a true professional agent should be able to easily explain the process and the factors associated with doing buyer possession correctly so that the parties involved can make an informed decision. Buyer Possession is typically done in very short terms and submitted along with the Offer to Purchase and can result in extra money for the seller.
DUE DILIGENCE FEE – The first variable of a Buyer Possession actually lies back in the original offer to purchase contract on page one. Since the seller is incurring more perceived risk in a buyer possession before closing situation, the Due Diligence Fee should be treated much like a non-refundable security deposit. All Due Diligence Period activities should be conducted and completed prior to the Commencement Date (the first day of buyer possession). These include inspections, repair requests, repairs themselves and re-inspections as needed. Due Diligence should be completed or waived from the moment the buyer takes early possession.
MOVING IN – Once the buyer moves in, they should have the mindset of a good tenant. All things such as utilities and minor maintenance (i.e. light bulbs and cleaning, and lawn maintenance) fall squarely on the shoulders of the tenant/buyer. Even though major renovations or maybe simply minor paint color changes may be planned, the tenant/buyer shall not alter, modify, or fail to maintain the property prior to closing and recording of the deed without the seller’s written permission. An informed seller would also be ill advised to approve any modifications prior to recordation. If for some reason, the closing doesn’t go through, the tenant/buyer would be completely responsible for all work and cost associated with bringing the property back to the original condition. The tenant/buyer should also remember that even though they are living in their future home, they will have to agree to grant access to other people associated with the sell of that home including other agents, contractors, appraisers, etc.…
RENT – The buyer should pay the agreed-upon, reasonable daily rent in full prior to the Commencement Date and should be for the full term whether or not the buyer actually takes possession of the property on that day. Since this is in conjunction with an Offer to Purchase and an aforementioned Due Diligence Fee, there doesn’t always need to be a security deposit. I would propose, because of the complexities associated with handling security deposits properly, that there shouldn’t be security deposits taken in these cases – these considerations should be factored into the Due Diligence Fee for simplicity.
HOLDING OVER – In the event that the Offer to Purchase contract is terminated for any reason by any party, it should be understood that the buyer will be required to vacate the property at the end of the term. If the buyer remains in the property thereafter (Holding Over), then such Holding Over will be considered a breach of contract and the daily fees and potential legal costs can quickly compound.
INSURANCE – Until closing, the buyer/tenant will be responsible for maintaining insurance on their personal property in the form of renter’s insurance and the seller should maintain fire insurance as well as other policies already in place such as wind & hail and/or flood insurance. Both parties should coordinate/confirm with their real estate agents and insurance companies to assure that adequate and appropriate coverage is maintained throughout the Buyer Possession Period.
SUMMARY – As a real estate professional I feel it’s important that buyers and sellers understand and consider various types of offers. Often times, Buyer Possession Before Closing isn’t even explained to clients because lazy agents perceive it as too much work. In reality, if done correctly it could be quite reasonable and beneficial, lucrative even for both parties.