Should You Move In Before Closing?

Buyers and Sellers often find themselves in situations in which the the buyer wants to move in before closing. Realtors generally hate early occupancy, this post will discuss some of the reasons why and some of the ways to try to prevent the potential risks.

Nevertheless…remember Murphy’s Law. I think old Murphy probably discovered his law by dealing with early occupancy.

A huge risk is that the buyers fail to close. You wouldn’t believe some of the things that can happen, over my 19 years in real estate I have witnessed some crazy things. Everything from the lender going bankrupt after closing but before recording, to the buyer getting fired the night before the closing. The bottom line is that it can happen, and when it does it is usually something completely out of the blue that could not be foreseen. For that reason there should be a clear statement in the early occupancy agreement about what happens if the buyer fails to close by a certain date.

What if something happens to the house? Like a fire? Whose fault is it? There better be an insurance policy that covers the property. Make sure this policy is in place and sufficiently covers the house before occupancy.

There should be an agreed occupancy rate. Often this rate increases as much as 2-3 times if the buyer doesn’t close by a certain date. This should be a daily rate and paid up front weekly.

The buyer should assume the utilities before occupancy. Make sure the electricity, water, and heat are in the buyers name before occupancy.

The house may develop a problem after occupancy. The buyer may expect the seller to fix something that the seller thinks the buyer caused. Occasionally it’s not easy to tell who is the cause and who should fix the problem. This can be a thorny issue that is impossible to foresee and must be dealt with. Emotions can run high when both parties blame the other for a problem.

Often early occupancy requires an increased amount of earnest money or an agreement by the buyer that the earnest money is non-refundable upon occupancy. This ensures that the buyer is actually “earnest”.

Most of this post is written from the point of view of the seller, because the seller is taking more of a risk than a buyer. But each of these potential problems are also the buyers problems. If you move into a house and can’t close for any reason, what then?

No matter what you do, early occupancy has risks. You can allay some of the risks through negotiating some of the above into the deal but there is no way to remove all the risk. So if early occupancy is the best of the few available choices to you, take some of the advice above to give yourself a better chance for successful transaction.