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 make 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 frozen! When
they returned, the temps had come up out side
and there was water pouring out 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 off set 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 non refundable.
This is an extra incentive to get them to closing.
But make sure that the earnest money is enough
– I mean it 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 non-refundable. 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 insures
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.
1) Seller signs and EOA, 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
2) 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 non refundable.
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
3) 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
4) Buyer looses their job. This is a bummer, and I
have seen this happen. Before closing, the buyer
get’s 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 loose their earnest money
and any daily rents as well. Risk of happening,
with COVID, I would say Medium/Low.
5) 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 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!