Lancaster County PA Realty Check: Sellers - Don't Let Your Buyer Move In Before Settlement

Sellers - Don't Let Your Buyer Move In Before Settlement

Sellers - Don't Let Your Buyer Move In Before Settlement

Every so often, when a vacant house is for sale, a buyer will have a situation where they need to leave their current home before their settlement on the new house.  They may be renters whose current home is being sold to someone else and they are being forced to leave.  Sometimes the house they are purchasing needs work, and the buyers want to take possession and do the needed repairs themselves before settlement.

It may seem easy for the seller to have their agent write up a pre-settlement occupancy agreement, and receive a little rent before the settlement.  Please trust me on this:  DON'T DO IT! 

What will happen virtually every time is that the new buyer, after moving in, will discover little things (or not-so-little things) that they hadn't noticed originally, and want the seller to either fix them or make an adjustment off the price of the home.

Buyers have ample opportunities to thoroughly inspect houses before they purchase.  Buyers have the right to ask for a professional home inspection, and I highly encourage them to do so.  The purchase can be made contingent upon a home inspection report satisfactory to the buyers.

However, if the buyer is allowed to move in before settlement, the seller is asking for trouble.  Let me give you an example:  I once had a chain of four homes waiting to settle.  I had a buyer for a townhouse.  The seller of that townhouse was buying a small detached house.  The seller of the small detached house was buying a larger detached house.  I was representing the seller of the larger detached house, and they were also going to buy a luxury home.

You can see that I was highly invested in making this whole series of transactions work!  My seller of the larger home wanted to move into the luxury home, which was vacant, a month before settlement so they could redecorate.   A pre-settlement occupancy agreement was negotiated, and they moved in.  Even though they had had a professional home inspection beforehand, once they move in and started redecorating, they found a number of issues that they were not pleased with.

Some of their complaints were reasonable, and some weren't reasonable.  They threatened not to go through with the purchase if they did not get a large reduction in the price.  Of course, if this sale didn't go through, all of the other sales that were dependent on it would fall through as well.  Even though some of the demands were unreasonable, the seller of the luxury home was forced to make expensive concessions.

Let me emphasize that buyers need to take every opportunity to be sure that they are familiar with the condition of the house that they are planning to purchase.  But once the inspections are made and the buyer is satisfied with the results, possession should not take place until the financing is "clear to close" and the settlement takes place.

 

Brian Schulman offers expert real estate representation for buyers and sellers of homes in Lancaster County, PA.  To learn more, visit http://www.FindLancasterHomes.com/

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Comment balloon 8 commentsBrian Schulman • September 28 2007 08:18AM

Comments

Excellentn advice.  What scares me more about early possession is the fact that the seller has become a landlord and the buyer a tenant...you're open to a whole different arena of liability, especially if that loan falls through and the closing never occurs.
Posted by Leigh Brown, CEO, Dream Maker - Charlotte, NC (Leigh Brown & Associates, RE/MAX Executive) over 10 years ago

I agree with you. I've also seen an instance where the seller let the buyer start moving their stuff in the basement of a 2-flat. Well, as luck would have it, the basement flooded and the buyer's things were floating. The buyer didn't own the house yet...what an insurance nightmare. And of course, they pulled out of the deal. The seller was distraught (the basement had never flooded before, it was a total fluke).

I used to be a real estate paralegal and we never advised our clients to do any type of pre-closing possession for the buyers (or post-closing possession for the sellers for that matter). But some clients still do it and it can open up a huge can of worms! Always get the advice of an attorney before undertaking anything of this nature.

Great post!

Posted by Kelly Sibilsky (Licensed Through Referral Connection, LTD.) over 10 years ago
Amen!  This a really bad course of action and should only be undertaken with a complete agreement in writing with recourses for the seller.  Even then, it's a bad idea.
Posted by Jeff R. Geoghan, REALTOR, Marketing Manager (Coldwell Banker Residential Brokerage) over 10 years ago
Leigh, that's why I specified a pre-settlement occupancy agreement.  It should clarify that that it is specifically NOT a lease, and gives the occupant no rights to stay past a specific date (unless, of course, the settlement takes place and the occupant becomes the owner).  Also, there should be an extremely high per diem charge for every day the occupant stays past the agreement, if there is no settlement.
Posted by Brian Schulman, Lancaster County PA RealEstate Expert 717-951-5552 (Coldwell Banker Residential Brokerage, Lancaster PA) over 10 years ago
Kelly, I once had a transaction where the finished basement flooded right after the settlement, where it had never happened before.  It was a bad situation for everyone involved.  You make a great point about avoiding post-settlement occupancy agreements for the seller, too.
Posted by Brian Schulman, Lancaster County PA RealEstate Expert 717-951-5552 (Coldwell Banker Residential Brokerage, Lancaster PA) over 10 years ago
You're right, Jeff - even with all the precautions you can put into the agreement, it's still a bad idea.
Posted by Brian Schulman, Lancaster County PA RealEstate Expert 717-951-5552 (Coldwell Banker Residential Brokerage, Lancaster PA) over 10 years ago
Basement flooding is a nightmare of all realtors. Good advice.
Posted by Gita Bantwal, REALTOR,ABR,CRS,SRES,GRI - Bucks County & Philadel (RE/MAX Centre Realtors) over 10 years ago
Gita, I once had a 3-year-old house with a finished basement flood a week after the buyer took possession.  You can definitely believe that it was a nightmare for a while...
Posted by Brian Schulman, Lancaster County PA RealEstate Expert 717-951-5552 (Coldwell Banker Residential Brokerage, Lancaster PA) over 10 years ago

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