Taking Possession Before Or After Closing

It was in the hardscrabble life of the wild West that the phrase was born, “Possession is nine-tenths of the law.” You stayed on your land, and you owned it. To a certain extent, the cliche remains true today.

Possession is when you actually take control of the property. It is the last thing that usually happens in the home buying process, unless a special deal is made to allow the sellers to move out after closing, or for the buyers to get access to the property prior to closing.

At the closing, or at the close of escrow, the keys, and other security devices (like the garage opener, mailbox key or storage lock combination) are handed over to the buyer from the seller who has typically moved all of his or her belongings from the home.

At that moment, you have the right to do anything you want with your house, provided it does not exceed certain community rules or local laws. For example, paint your interior lime green, tear up the grass and lay pavement for a basketball court, or simply take a nap on the deck.

Sometimes possession is given either before the closing or after. Let’s say you need a place to live or want to renovate the home prior to the closing. The seller might let you take possession early so that you can move in or get started on the remodeling.

But a wise real estate attorney may not let his clients, the sellers, allow a pre-closing possession. Why? Once the buyers are in, it may be tough to get them out if they’re unable to close on the property. Once on the premises, they could do substantial damage to the home, which the seller would then have to pay to correct before being able to remarket the property. Finally, the seller may have to go through eviction proceedings and still market the home to sell to someone else. It could be recipe for disaster.

But what if the seller wants to retain possession after you close? Should a home buyer allow it?

There are two issues to consider here. First, if you don’t mind that the sellers are there because your lease doesn’t run out on your apartment for another 2 months, then you might be willing to allow post-closing possession, as it is often called.

If you agree to a post-closing possession, you might want to charge the sellers a reasonable rate for the extra days they live in your home.

What’s reasonable? The daily rate should cover all of your daily expenses, including your mortgage, taxes, insurance, any monthly or special assessments, and any utilities that you would pay for, such as building cable.

But you should also build in an unreasonable rate if the sellers overstay their welcome. The unreasonable rate should be so stiff that they will choose to get out rather than continue to stay after the time to which you both have agreed. In other words, they’ll pay dearly for each extra day they stay.

Usually, sellers let you know up front if they’ll need a few extra days or weeks to get their belongings together. This date might be set in stone. If they’re building a new house, however, it could be a danger sign, as the closing date on their new home might get pushed back several times.

If you know what the general moving date parameters are, then you and your attorney can structure a post-closing possession agreement that outlines the reasonable and unreasonable fees the sellers will pay based on how long they stay in the home.

If, however, your sellers suddenly spring it on you the day before closing that they’re not going anywhere, you may have a problem. In this case, real estate attorneys generally advise their clients not to close until the seller has moved out.

If you do close, and the sellers are keeping possession for a short period of time, you should put a portion of the closing funds into an escrow account at closing. The sellers will receive these funds after they move out of the home. These funds are an important piece of leverage you may need if the sellers decide perhaps they’ll stay after all.

Here are a couple of things to think about when it comes to possession:

Sometimes the closing date is more important than money. In North Carolina, a woman made an offer above list price for a beautiful home. The seller, an elderly woman caring for her grandchildren, had trouble accepting the offer. Turns out, she didn’t know where she and her grandchildren were going to live. The buyer gave her post-closing possession for three months in exchange for a few thousand dollars off the sales price.

In some areas of the country, it’s customary for the seller to retain possession for three to five days, or even longer, after closing at no cost. Your broker or real estate attorney should be able to advise you of the local custom. Be aware, however, that local customs do not always have to be followed. Also, there could be risks involved with allowing the seller to stay on after closing if you don’t have any holdback of funds or a written agreement on when the seller is going to vacate the premises.

Sellers and their attorneys will often fight the idea that you’re putting a large chunk of closing cash into escrow until possession is turned over. Unless this is a local custom (again, your broker can advise you), don’t give in. Escrow is a cheaper and better carrot than legal action.

If nothing else works, and the sellers still refuse to move, talk to your attorney about your legal rights and remedies.

Published: Mar 29, 1999


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