So … You want to move in early?
We have many Buyers that are getting anxious to get their new life started in their new spread and ask Sellers permission to move in or make changes to the property prior to closing. A few cases…
Case #1 – The Pouty Buyer
The Buyer due to close in three weeks, ready to close early but could not get the lender to move things along on their end to proceed to close. The Buyer went around us and asked the Seller directly if they could move in. Sellers are most always loyal as they have hired us for a service and have faith and confidence in our opinions. This Seller called us and ask if that would be a problem. My response was the usual “cause and effect” of devils advocacy:
- Allowing a buyer to move in early establishes a tenancy, so if for some reason it does not close you now have a tenant to evict.
- Does your umbrella or insurance policy cover if your new tenant burns the place down, floods it or falls down the front steps bangs his head on the concrete and kills himself?
- Who will pay any incurred bills or damages on the property should the new tenant fail to close and fail to pay for any services?
His response was fast and simple: “ok, NO!”
I still believe this is the source of tension to this day between the Buyer and myself, but had they approached me first I could have explained their side of that coin:
- What if you give up your very hard to acquire rental and move in and the Seller decides to not sell or can not sell?
- Will your renters insurance cover the damage to the property should your pickup in the garage catch fire and burn the place down? Will you have liability coverage of others for others?
- What if something happens in your life and your financing fails and you can not buy?
Case #2 – The Swindling Seller-family
Buyers were financing thru a mortgage company whose loan officer was the son-in-law of the Seller. Buyers rented the property, under condition of close in four weeks, at $1000.00 per week. No other rental was available and due to a child in school, a permanent address (not a motel or short term type of housing) was required. You have probably got this one figured out! The Seller collected $1000.00 per week and the mortgage company seemed to just plain stall for nine weeks, yes $9,000.00. Buyers gave mortgage company a 7 day limit and the “rental” was vacated, the purchase agreement voided. The Sellers kept the $5,000.00 earnest money when the Buyers walked away. Note: No Realtor was used in this case; should have!
Case #3 – The Praying Seller
Without the services of a Realtor a Seller allows the Buyer to take possession two months prior to closing. During those two months he cut down all the trees on one side of the double tree lined driveway and did significant dirt work. The Seller did not give permission nor did he have any agreement prohibiting the Buyer from making changes until after closing. It had a happy ending, it did close. But the Seller stated he was sweating it out and really hoping it closed because as far as he was concerned he didn’t want it back after the Buyer “destroyed” the look of the place.
Case #4 – You want to do what to my property?
A darling little Wyoming spread with some older improvements and a neat 100 year old home went under contract. The Seller was distant/absent, the property had not been lived in for ten years or so. For the Buyer to perform full inspections water activation was required, as well as power. The Seller was selling “as is, where is” and would not activate any services.
The Buyer paid for repair of water lines to inspect as well as qualify for appraisal. Power was activated as courtesy by Power Company for Broker. The appraiser called out nearly $20,000 in repairs to be done prior to funding of loan. Escrow and repair post close was not an option. The Buyer was willing but…
Again, like moving in prior to closing, repairs or improvements done prior to close have the same risk as moving in. What if it does not close? Where does liability fall? Insurable interests? Liens?
Case #5 – The Cohabitating Buyer and Seller
Two cooperating agency’s each had Buyer and Seller on a wonderful river property. Closing was scheduled and required extension twice as Buyer was just not lined up with finances yet. Buyer’s Agent had referred a relative mortgage company. The Seller’s were not clearly advised of the position of finance but where not going to extend again. Early one Saturday morning Seller received a call from a very apologetic Buyer. This is highly irregular, but in this case, it was the saving of the transaction. The Buyer said they did not feel their Agent was passing information on and they wanted to talk about the situation. They were correct.
He explained the lender and agent has not been getting in contact with them and they do not know exactly where in the process they are, other than to say this… they were promised funding by closing come Monday. Last night the Lender called and said they would not be funded for an additional two weeks without explanation. Their situation was this; they had given up their leased space weeks earlier where they were at with their Airstream and it was released and they had to be gone on Monday. Their worldly possessions from their home 1500 miles away were already in transit and again no place to put a thing. We were the Sellers personally. We gave possession at close so we had already completely moved, less our bed. We called our Agent and explained the phone call, her advice was – it’s not our problem. Not inexperienced, we called the Buyers and invited them down for a pow-wow. Our Agent was invited but declined.
We worked out this… they moved their Airstream on to the place, hooked them up to water and power. They paid power. They activated their homeowners insurance with us as additional insured for liability coverage. We have adequate to cover hazard, personal property, and general liability for both of us. They moved their stuff into our home and we lived there, using their furniture while they lived in their Airstream. We did not let them establish a tenancy in the home, yet they had a place to live. I do not recommend this, but with experience behind us, we were able to cover both parties and costs absorbed, was better than the alternative. At closing we sat waiting with the Agents and Title Officer and no one knew where the Buyers were. We did, after all they were our very close neighbors! Their Agent did not tell them they needed certified funds for closing, they were 150 miles away at their bank getting funds! We have been friends ever since. We were fortunate to have a harmonious outcome.
In summary …
While I do not believe either party will intentionally fail to close at that point in the transaction, I do know unforeseen chances in fate can occur. Devastating chances of fate. Such as … for a Seller; passing of the principal, devastation either total loss or partial (fire or hail), attachment of an IRS lien or other type of encumbrance that will not be met by the sale. A Buyer has some of the same; passing of either principal on the loan, medical devastation, loss of employment, change in financial position causing failure of loan, bank failure, loss of interest lock.
Here is a list for both Seller’s and Buyer’s to consider before agreeing to changing possession to prior of closing. While nothing at all may happen, it may work out just fine, BUT which of these is an acceptable circumstance should it not work out just fine…
- Death of a party and unable to close.
- Buyer turned tenant and eviction process.
- Under insured property.
- Under insured liability.
- Loss of improvements.
- Loss of personal property.
- Damages to property. Mechanic’s Liens.
- Unauthorized changes to improvements.
- Loss of financing.
- Incapacitation of any party without successor, POA or trustee.
- Loss of employment.
- Liens and/or unfinished changes to property/improvements.
While no one wants to think something awful can happen, sometimes it does. Your home is likely your largest, most valuable asset; think before you take on unnecessary risk of early possession. Buyers, think about the liability as well, and think about what you have to lose. I would be happy to chat about these and how and what hazards can result from the above broad list.