Should you allow a buyer to move in your home early?
Ask Cora
Should you allow a buyer to move in your home early?
Hey Cora, I live out of state and have sold my house. The buyers haven’t closed yet, but they want to rent my house before they close. This makes me nervous, with this COVID thing and they cannot be evicted, what happens if they refuse to close on my house? I don’t want to be a landlord, and I feel like they would “hold all the cards”, so to speak. Signed, Cardless Landlord
Dear Cardless, I understand your feelings on this, but maybe I can help a bit here; first of all, you are not required to allow your buyers to early occupy, it’s just a request. The other agent in the transaction will prepare an Early Occupancy Agreement or EOA. You can say no and
they will most likely find some other temporary quarters to stay in until you close on your home. But it is the most convenient for buyers to just ask the seller if they can move in early and, if your home is empty, this can benefit you as well – here is how:
1) Home Looks lived in; the home has someone living there. You wouldn’t have to worry about anyone vandalizing your vacant home.
2) Heat in Winter; The heat would be on and monitored. As we approach winter, having someone in the home is better than having it vacant because of a bunch of reasons, but heat is a biggy. I had a friend who went on vacation for 2 weeks in December. The batteries in her thermostat went out, just about the time they closed the door to leave – epic timing! The house was frozen! And this wasn’t the good kind of Disney Frozen! This was “ruin the house” kind of frozen! When they returned, the temps had come up outside and there was water pouring out of every orifice of the home! Schnikies! “Hello, insurance company?”
3) Collecting rent; They would pay you a daily rent to live there. Sometimes, this rent is collected upfront and sometimes, it’s paid at closing, that’s your choice. But it could help offset your mortgage payment.
4) Utilities; ask the buyers to not only pay you rent but put the utilities in their name as well. They are going to have to do it anyway once the sale goes thru.
5) Earnest Money; once they early occupy, their earnest money would become nonrefundable. This is an extra incentive to get them to closing. But make sure that the earnest money is enough – I mean if it’s a $500,000 house and they have $1,000 earnest money – that’s not going to cut it! Usually, earnest money is 1% of the purchase
price, so this would be a $5,000 earnest money. If the house is $170,000 you would have $1,700 in earnest money. But let’s say that you as the seller, are still not ready to jump on that, you can ask them to increase their earnest money and make it nonrefundable. This way, everyone is taking the risk, not just you as the seller.
6) Protection: The EOA that your realtor will go over with you, has specific language to protect you when you do this. It has specific dates for and specific costs and penalties if the buyer decides not to close for some reason – or cannot close for some reason. A good contract is when one party does not take on all the risk, the EOA ensures that you as the seller, do not take on all the risk.
7) Eviction; The rule that is currently in place where you cannot evict, does not apply in this case. It’s not a lease agreement, it’s an EOA that is an amendment to the Purchase and Sale Agreement. Landlord tenant law does not apply. If they cannot close, they must get out. Okay, now, what can go wrong? There are several things that can go wrong, and I have experienced several of them during my career.
A) Seller signs an EOA, and buyer dies in the home. It has happened. The seller could be responsible for getting the property cleaned up and the buyers’ things moved out! Yikes. The risk of this happening? Low
B) Buyers move in and decide they don’t want to buy the house. This can happen! There could be a barking dog next door that they just hate, or jets that fly over low at night, who knows, but they just want out! This is when that clause in the contract that states that if they fail to close, their earnest money becomes nonrefundable. This, many times will keep people in the home and get them to closing. But if it doesn’t, you
just keep the money as compensation and sell it again! Risk of happening: Low
C) Divorce, this has happened. They move in and two weeks later, decide that a new house wouldn’t solve their problems and they are getting divorced and don’t want to close on the house. Here ya go seller – here’s $4,500 for your troubles! Risk of happening: Low
D) Buyer loses their job. This is a bummer, and I have seen this happen. Before closing, the buyer gets laid off and cannot close. As sad as this is for the buyer, according to the Early Occupancy Agreement, they only have a couple of days to
move out and have the home ready for you to sell again AND they lose their earnest money and any daily rents as well. Risk of happening, with COVID, I would say Medium/Low.
E) Home doesn’t close on time. There is a provision in the Early Occupancy Agreement that states that if you don’t close by a certain date, your rent is increased until closing. This is a good incentive to get people to the closing table – use it! Risk of happening Medium to High again because of COVID. Right now, everyone is all backed up – mortgage companies are behind, title companies are struggling to keep up – they cannot type title policies fast enough right now, so be reasonable, if it’s not the fault of the buyer – work it out! Risk of not closing on time I would say HIGH.
There is a lot about early occupying that is good and bad. Have the conversation with your Realtor before making a decision on moving forward with this – it can be good for everyone, it can also be bad for you if you don’t understand all the nuances. Do consider it, Don’t jump in without reading the EOA and have the RISK conversation with your Realtor! Remember, if you are buying or selling, give me a call, I would love to be your Realtor!