What Can Go Wrong if the Buyer Takes Early Possession?

Before buyers move into their new homes, escrow needs to close. That means all conditions and contingencies in the contract need to be met within a certain time frame, and all necessary documents must be signed by the closing date specified in the purchase agreement. At that point, buyers will get the keys to their new abode and are free to move in.

But while this is the case in just about every real estate deal, there is the odd time when a buyer may request to take possession before closing arrives. Whether it’s because the home they just sold hasn’t closed yet or their rental lease expires a few days before your closing date, some buyers may ask to move into your home before the deal is sealed for good.

So what’s the harm in letting the buyer claim a stake in your home before escrow closes?

Plenty. If you allow a buyer to take early possession of your home before all contingencies have cleared and title has yet to be transferred, you could be vulnerable to significant issues.

Here are just some of the problems you can run into if the buyer moves in before your contract’s closing date arrives.

Your Insurance Policy May Not Cover Issues

Until escrow actually closes and the title has been transferred over to the buyer, the home is still yours, which means your insurance policy should still be in effect. If everything goes smoothly, there will be no need to file a claim. But what happens when there’s been some damage done to the property as result of the buyer? What if the buyer or someone that they’ve invited gets hurt in your home? Whose responsibility will it be?

Liability will fall on you, since the buyer will not have any property insurance on the home until their name is on title. In the meantime, your policy is still in effect. But complications can arise when filing a claim because someone else is living there even though the insurance coverage is still under your name.

Changes to the Property Could Cause Problems

If the buyer moves in early and starts making changes to the place and fixing things up, problems can certainly arise as a result. If the buyer starts dabbling in some construction to remodel the bathroom, change the layout of the basement, or even install some light fixtures, you could be liable if they sustain an injury in the process.

Not only that, if any changes are made without a permit, you could be in the dog’s house with your local building department since the home is still titled to you.

Closing Could Drag On

Ideally, your deal will close on the date specified and agreed upon in your contract. However, there may be certain obstacles that can stand in the way of a timely closing. Maybe there’s an issue with the title that needs to be ironed out, or perhaps there was a problem with the appraisal. Maybe the proceeds of the sale are stuck in escrow or maybe there’s a disparity in closing numbers.

Whatever the case may be, a delay in closing means the buyers get to live in your home for a longer period before you see any proceeds from the sale. You may even be left wondering if the deal will ever close at all, which brings us to our next point.

The Sale Falls Through

What happens if the deal doesn’t go through at all? What if the issues met during escrow are never resolved? Should this happen, you’ll be put in the position to evict the buyers from your home. Meanwhile, they could have already made changes to the property (that you may or may not like) or may have done some damage after realizing the sale fell through.

At this point, you’ll have to cover the costs of having your home brought back to pristine condition, after having had to deal with kicking the buyers out. You’ll then have to spend more time and money to market your home all over again and cover all the carrying costs (such as mortgage payments, property taxes, homeowners insurance, etc) until you’re able to find a new willing buyer. It’s possible that the price you’re offered the second time around is lower than what you were offered from the first buyer.

Any way you look at it, having the deal fall through after you’ve allowed the buyer to move into your home is messy all around.

The Bottom Line

Until the title has been transferred and you get the full proceeds of the sale, that house is still yours. That means any issues related to it – even if they are caused by the buyer – are your responsibility. Rarely is it wise to allow a buyer to move in before the closing date arrives. If you must, make sure that you speak with a real estate lawyer and draft up a solid contract that will give you an easy way out if anything goes awry.