What sounds good to a new agent without much experience is to allow a person into your home before settlement. At first it may seem accommodating and may even compliment your religious or spiritual beliefs, but the downside could be down right unexpected. It is not about the emotions, but rather about the principles of business. Objectivity should rule the day, not your emotions!
The most common scenario for a request in pre-occupancy is a "Dry closing" where mortgage funding is supposedly waiting on additional paperwork or authorization, or approval from underwriting. The purchaser or agent may request the key to the property in the meantime while they wait on wired funds or that final approval. It is not wise to do so. Per contract, the buyer had a specified period of time to get their financing together before closing. A late delay without notification does not make you a bad or evil person to advise your seller to say no! It is not your problem that the moving truck is parked outside, your seller has already moved their things out! You must think of whom your job is to protect!
The complications that can arise could be an unintended tenancy, an accident, personal injury, destruction of the property without insurance coverage to protect the owner or parties, and yes, even fraud. A broker recently advised me that this is one of the more common frauds being perpetrated at this time.
There was a scam in the Atlanta area several years ago where a person posing as a buyer we get a pre-occupancy of the property, and the owners due to local laws were unable to evict the inhabitants. In one case it took over 2 years to evict the parties.
As real estate agents, it is wise to understand the issues, advise parties to seek legal counsel, when in doubt....call your broker for advice, sign a temporary occupancy agreement spelling out the terms, fees, and penalties, and above all if the parties proceed have a "hold harmless agreement" to protect yourself and your career should the parties deiced to move ahead with a pre-occupancy against your advice!
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Hi Jim!
You are absolutely right! A few years ago, an agent in our office allowed the buyers to go in prior to recording to do some work on the house...okay...here it comes. They decided to put a coat of linseed oil on the hardwood floors...didn't quite finish in one day, so left the rags in a corner to finish up the next day...for those who don't know...linseed oil on rags stacked are combustible. Yep...the house caught fire that night and burned down. Oops!
Jim: I totally agree with you on this one. Once the buyer has occupancy of the home... all of the seller's leverage is out the window. If the loan has not yet closed and funded, and the buyer has pre-occupancy... why should they hurry with anything. They are alread in ! Never a good plan.
My imagination runs wild when I think of what *could* happen in a situation like this. Great advice!
Paula, I thought that was urban legend just to scare new agents into NEVER LETting CLIENTS MOVE IN PRIOR TO CLOSING!!
Agreed... I discourage these everytime I someone mentions early occupancy. Yikes. No thanks. Fund the loan and you can have the keys.
Hi David!
Nope...I smelled the smoke myself!
Hi Jim,
I have seen a few times where pre-occupancy was arranged. We don't do contracts in this area they are completely done by attorneys. The attorneys draw up and approve the agreement.
All the best!
Jim,
Pre-occupancy can really turn ugly if the closing for any one of a million reasons doesn't pan out. It should be strongly discouraged. I've heard some horror stories over these things. Ouch.
Great advise!! An agent asked me recently if their clients could move in one month before closing. I didn't have enough time to explain all the reasons why this is not a good idea. Luckily they understood...and hopefully they will not do this in the future.
You are so right. We have had to go and remove keys from the lock box to keep the other agent from taking them and giving them to their buyer/client. Meanwhile the moving truck was hovering. But no way were we letting the buyer in before the house was funded and recorded.
I have only done one. I represented the buyer. We gave the seller a large non-refundable deposit, had liability insurance and had conditional loan approval. We closed about 5 days later. In this case my client came in from out of the country, had major surgery at the military hospital and had no where to stay after getting released from the hospital. The seller was an area real estate agent and was willing to help out as long as we removed their risk.
Under normal conditions, I strongly recommend against doing them for all of the reasons you mentioned a a few more.
Geez. Which is worse, Pre-settlement Occupancy or Post-settlement Occupancy.
I could tell you horror stories for both.
I like the buyers who get to town and want to move in the vacant house prior to closing but don't want to pay any rent.
Then there are sellers who want to stay 3 weeks after closing but don't want to pay rent.
These things are a nightmare.
Jim...
We had a case in which a CO-OPING AGENT took the key out the lockbox and gave it to the buyer who started moving in before closing! Can you believe it? Fortunately, the property closed or who knows what would have happened.
Jim,
Been there...done that...I hate dry closings...when you show up to the table and they tell you...don't worry about funding...you'll get your checks on Monday. worse day to close is on Fridat after 12pm...wires are late...insurance issues. If the buyer moves in and the house falls down...who do you think is responsible? I tell the title company I will not give the keys until the checks are cut for the seller and my office.
Whathappens if the lender decides at the last minute not to lend the money and the house is now occupied by the buyer?
I've done a few post occupancies...they aren't the best option and then you take all this time figuring out the prorations.Thankfully mine were all worked out but as Lenn says ...they can be a nightmare.
We have never had any luck with pre-occupancy agreements no matter what terms we include in the offer.
Paula Swayne (Windermere Dunnigan Realtors, Sacramento) That is one of those moments in life we would like to do over.
Fort Worth Real Estate - Karen Anne Stone (RE/MAX Trinity) Karen you are so right. I also heard that on lease purchase the reason so many do not close is that this is a time to find all the reasons you do not need to close....
Darrel Davis, Windsor Realty Group (Windsor Realty Group INC.) The possibilities are endless!
David Bennett (Yorba Linda Real Estate - Tarbell, Realtors) LOL! I've heard of almost as crazy of things happening!
Fairbanks Real Estate Broker Jesse Clifton (Jesse & Kathy Clifton, REALTORS - 907.699.6024 - ) No matter how many times they ask, the answer should be the same, no, no, no, no, no...
Paula Swayne (Windermere Dunnigan Realtors, Sacramento) Incredible but true!
Kevin O'Shea, White Plains, NY Real Estate (American Classic Homes, Inc.) Kevin, I keep forgetting about NY, I was licensed there, and you are right. I was only allowed to take a binder!
I couldn't agree with you more -- Nor, do I like agreements where the sellers rents back after closing -- these are definately high risk situations and I discourage them. Good advice.
Pre-occupancy is just way too risky and even with a pre-occupancy agreement things can still go wrong. Very good information for sellers Jim.
Esko Kiuru - Las Vegas NV Mortgage Consultant (Sinifox Financial) You are so right. We have enought troubles in our business today without throwing fuel onto the fire.
Melissa Martinez, Tampa Bay, FL (RE/MAX First in Real Estate) That is why there is Motel 6! They leave the lights on!
Bob & Carolin Benjamin - E Phoenix Arizona Real Estate (The Benjamin Team - Keller Williams Integrity First Realty ) I like the idea of picking up the keys the day before after their final walk-thru. Never even give up possession of the keys until closing!
Randy L. Prothero - Hawaii REALTOR® (Century 21 Liberty Homes) In a reasonable time, this would not have been an issue, but in today's world where scamsters are up at the crack of dawn scheming new ways to seperate you from your money and possessions...it is not a good idea. The apeal is also to your human nature and compassion, but that can be the stuff of what cons are made of too. People do not realize that the word "Con" does not come from "Convict", it comes from the word "Confidence!"
Lenn Harley, Homefinders.com, MD & VA Real Estate Lenn in Georgia the accepted way to close a home was having the seller retain possession a few days after closing. It was based upon the last soft markets whenre the seller's have moved out and the closing doesn't happen. What is worse, they used to do it on a handshake basically, and no post closing temporary occupancy agreement, and no prorations! On every deal, it is a nail biter! Thank God it is dissappearing these days because of the recognized liability of the entire situation.
Richard Weisser, Associate Broker, E-Pro ERA United Realty, Auctioneer, CE Author (Coweta Fayette Real Estate, Inc. ERA United Realty) Thaat is every agents worse nightmare! Most of the deals will actually go OK, but it only takes one to put the fear of God in us!
Neal Bloom-Realtor ® Assoc.-CRS-Weston FL (RE/MAX Premier Associates) A lot of those situations make me very uncomfortable, and made me a true believer in God.
Sam Miller (RE/MAX Stars Realty) They are nail biters until they fufill the terms.
Joan Whitebook, ABR, e-Pro, CEBA (Buyer's Option Realty Services) We need to give our clients the best advice possible. On a recent closing we had the other agent that did not inform us there was a dry closing, demanded a pre-occupancy without an agreement. When we said no, she insisted on not signing the agreement calling us trouble makers.
you most certainly cannot allow them in until closing....all sorts of horrible things can happen.
Steve Harless (REALTY WORLD LUXURY HOMES -702.217.1680)
You bet!
JIm,
What in theory may sound good to an untrained newbie...has proven to be disastrous in almost every circumstance where I have seen it tried...the bad things that can happen (and often do) far, far, far outweigh the 'good'...!!! Thanks, Fran
Fran 'The Title Man' Gaspari Title Insurance-PA & NJ (Patriot Land Transfer, Inc.) Thanks Fran. It is important to remove yourself emotionally from the deal so we can look at the facts objectivley.
Hey, Jim. I agree with you 100 %. It is never a good idea to turn over the keys until you have the money in the bank. There are plenty of nice hotels that offer great rates and can accommodate people at a last minutes notice. Thanks for sharing and all my best to you, Jim
Jim, Great post! I could not agree with you more. As if it wasn't bad enough before letting buyers move in early, now it's even worse. I have only had one experience where the loan was never funded, but can only imagine had keys exchanged hands!
I think agents that do recommend early occupancy to their clients have no clue as to the repercussions. I always advise my clients about the reality of the early move in and the nightmares that can occur. I let them know that "yes" it can happen to you!
Great advice, Jim. I find that insurance ramification and issues surrounding tenancy are the most overlooked aspects of pre-closing occupancy. You can't just boot the buyer out unceremoniously if their loan doesn't fund. You are most likely looking at the lengthy process of eviction. Will your insurance policy cover damage inflicted by a non-owner occupant? What if the buyer develops an equitable interest in the property by investing money into remodeling during the time prior to closing and the loan doesn't fund? As Realtors we are always looking for ways to be amenable to the interests of all parties involved, but it is our duty to protect our clients. Period. If I had a nickle for every time I have had to refuse pre-close possession, I would be quite wealthy. Doesn't make me overly popular with the other agent, but if they were typically more experienced, they would thank me. Very well done on this post.
I was part of a team with my husband - I know, I know... Anyway, he made an agreement with the buyer to unload all his belongings in the 3 car garage for a fee. After reading the 'fire story' I get chills thinking about what a mess this could have been. My hubby will be forced to read this post and the comments...
Jim, I definitely agree -- all sorts of problems with these pre and post occupancy agreements. Legal issues, insurance issues, and practical issues. Never a good idea. Great job on this post.
Jim & Maria Hart ~ Charleston, SC Real Estate (Agent Owned Realty) This is why we use the term..."Possession at Closing!" Some agents do not get it, and want to tear your head off when you say no.
Huntsville, Alabama Real Estate Agent Elizabeth Ramsey Golden (Remax Huntsville/Madison) We had a deal a few years ago that took 2 weeks to close. What would have happened if it never funded? Sellers that are desperate will do anything...reason and common sense say no!
Paul Slaybaugh, Scottsdale AZ Real Estate (Realty Executives) As an industry, we need to get the word out what could be done, does not mean it should be done! You brought up many incredible points!
Linda M. Cataldo - Myrtle Beach Real Estate (Century 21 Boling) Last year when I sold my own home, I allowed the purchaser to store some items in my garage (I had a second garage) We had a hold harmless agreement for theft adn injury. I had no problem with this. I had aqauired a familiarity with the purchaser, I had listed their primary residence, they were pre-qualified to buy by my own loand officer, and I had no problem with the arrangement. I felt good about it. However, I cannot do this with a total stranger.
Brian Block -- Northern Virginia & D.C. Real Estate (RE/MAX Allegiance) Thanks Brian! I agree!
I agree in principal but have to say that I personally have benefited from two pre-occupancy settlements in the last 5 years. There isn't anything more pitiful than a homeless realtor :-)
Cindy Jones-Offering Real Estate Service for the 21st Century in Northern VA (RE/MAX Allegiance #1 RE/MAX Company in the World) Cindy, pre-occupancies in Atlanta are mostly fraud. We must be alert to the possibilities. I have less reservations about post occupancies with the owner.
Jim - This is an issue that as a 2nd generation Realtor I could never get away with, occupancy on closing has been hammered at me almost since I could walk. There are times to be flexible of course, but only when you have the contract to back you up, that's the other thing that's been hammered at me, always get it in writting! Good Post.
Jim - This is an issue that as a 2nd generation Realtor I could never get away with, occupancy on closing has been hammered at me almost since I could walk, There are times to be flexible of course, but only when you have the contract to back you up that's the other thing that's been hammered at me always get it in writing. Good Post.
I have my buyers and sellers utilize "pods" quite often if their is a delay with closings. I would never allow pre occupancy just too many things that can go wrong.
In my experience if something can go wrong it will go wrong. Never let buyers in until everything is signed, sealed and completed.
It's like giving a contractor final payment BEFORE everything has been completed - it's just asking for trouble. Thanks for the great reminder.
Michael Bergin, Your Realtor in Alexandria, VA
Great Post Jim - even with hold harmless agreements the Sellers can get sued it's still their property.
Sincerely,
Grace
p.s. do you think the retail or auto industry would let you use the merchandise, drive the car a few weeks before coming back with payment? LOL
it amazes me people ask/expect this
Grace, I have been given a new truck to drive for a couple of weeks before I purchased it. I actually told the manager that I didn't like it after a week and he insisted that I keep it for another week. It worked LOL! I ended up starting to like it after all and purchased it.
I do get your point though.
I have had to be the bad guy a couple of times telling the seller no we can not let the buyer in before close. They seem like nice people and it would be such a nice offer to let them in. JUST SAY NO!!!!
thanks for your great insight! there have been several occasions in escrows in which I have been the listing broker where buyers' agents wanted to allow occupancy before closing. Things always go well IF there is a closing! But, in many cases, there is not, and that becomes a nightmare for sellers. I have agreed only 2 times, both of which had significant earnest money released to the seller, and I had an attorney draft the occupancy agreement. We need to remember not to be so anxious to help a transaction close, that we don't pay attention to potential problems that can be caused. And, especially given the foreclosures and short sales in today's market, we need to be very careful not to put buyers or sellers into a situation that will present problems if a transaction does not close for some reason. I appreciate your comments about this.
Terri White
Broker/Owner
Las Vegas Properties
Wow, This just re-inforces the fact that all real estate is local. Here in Leavenworth, KS (just North of KC and home to a military base), I have seen Pre-Occupancy and Post Occupancy Agreements many times. Our buyer clients often fly/drive into town over a weekend; choose their home, write an offer and depending on whether they are moving in directly within 2-3 weeks or not moving in for 2-3 months a Pre-Occupancy for the buyer or Post Occupancy for the seller are used. I have never seen a Pre-Occupancy at no cost though. Often the potential loan payment is calcualted and then that amount is used to establish the "rent" price that the buyer will pay or the seller will receive (paid up front directly to the seller outside of closing) for their participation. I can understand where it could be an issue if a loan doesn't fund or the buyer walks. Fortunately most of our military clientele wouldn't fall into that situation. By the way, prices are great in the Leavenworth/Lansing area; if you have any investor clients looking to acquire rental properties, send them this way! Thanks in advance! Mike
I've been guided NOT to allow pre or post occupancy no matter what! It turns into a mess and someone is normally unhappy!
Brooke Valentine, Realtor,Matching you to your Dream Home. (Re/Max Select ) I think a lot of agents do not want to understand the issues. One thing that may have some bearing on the issue was this was one of those major rebate companies...I assume the agents cut was next to nothing, and seh just wanted that. It is a major risk for all other involved.
Kim Dove (Vanguard Realty GMAC) I love the PODS idea!
Trela Bird, Realtor, Salt Lake City Utah (McDonald Group GMAC) That is my way of thinking!
Michael Bergin, Alexandria Specialist (Coldwell Banker Residential Brokerage) You are so right!
Jeff & Grace Safrin-SpousesSellingHouses REALTORS, F.C.Tucker Company, Indiana (F.C.Tucker/Advantage Realty) I was talking about a hold harmless for the agents.
Terry Westbrook ~ Realtor(R) Grand Rapids Mi Ada/Cascade Real Estate (Five Star Real Estate, LLC Grand Rapids , MI) "JUST SAY NO!" That is the right approach!
Jim: In our area being a Military community, it is common for the buyers to take possession early and pay rent to the seller until the day prior to closing.
LasVegasBroker I rpobably would never have thought of writing this if the situation did not arise.
Mike Nielsen, CRS, ABR, GRI, e-PRO (RE/MAX Action) Thanks Mike!
LaNita Cates (REMAX of Joliet) We have to also listen to the voice of reason.
Roland Woodworth "Ft. Campbell Area Realtor" (Exit Realty Clarksville) See, something like that I canunderstand. In Atlanta it is a scam game.
I completely agree. Although some people just want their homes sold and will agree to almost anything. But I definitely see the downside!
You are so right Jim. Avoid these agreements like the plague. This is a last resort position.
No early occupacy has to be the first rule of real estate. It does not make sense.
Christy Powers - Pooler, Savannah Real Estate Agent (Keller Williams Coastal Area Partners) There are major down sides. Show me the money, and I will show you the keys!
Wow, I learned alot with the post and comments, one of my clients just couldn't understand why the seller wouldn't let them in a day or two early after all the house was just sitting there empty, the seller's last contract on the home blew up the day before closing and the seller was not going to take ANY chances, I agree with the no occupancy until funded!
Portland Oregon Real Estate >> Wayne B. Pruner, GRI (Oregon First) I try to, but some agents will try to wear down a weary seller!
Crystal Ledbetter (Avalar Real Estate) Smart words..."no occupancy until funded"
No way would I do pre-occupancy, not even personal belongings in the garage. Have had a few seller lease back after closing and they workrd out fine...
Get Us A Home Realty I think a short structured lease back is OK.
The longer you are in the business, the more you undertand that ANYTHING can happen. Close the house, get confirmation, then the buyer can move in - that's all there is to it.
Hope Goss (Ventura Property Shoppe You are so right!
Don't do it! I learned the hard way. One of my first transactions way back when (1975) could have been disastrous because Buyer was allowed occupancy prior to closing. There was a huge storm and roof ended up leaking. It did end up closing but also cost the Seller quite a bit of $$.
Jim....I'm going to go both ways on this one....since it has worked both ways....
I did a TOA (Temporary Occupancy Agreement) for a Seller of mine. We had her house on the market for almost a year, and no offers. We finally got one, a strange buyer, but nonetheless, we had an offer. But he insisted the Seller had to be moved out of the house BEFORE closing. (we were trying to get her a couple days as she had to close on her new place I sold her) Anyway, I had her in her new place on a TOA, and the deal almost fell apart. I thought I was going to be paying for a moving truck to move her BACK to her house. But it all worked out....but pins and needles for a few days.... That would be my against them.
Now, we've got the condo market. And Buyers are having delays on closings, but need to move. If it had not been for the willingness of the Seller (developer) to let people move in while we cleared up issues with the mortgage companies...I would of lost 3 sales, and a heck of alot of money. They have all since closed and everyone could not be happier.
They can go both ways, and as long as they are done right and everyone is protected, then I think they have their place in certain situations.
The Thom And Ray Team You were lucky. It is one of the biggest frauds in Atlanta. A few years ago on an upscale property, we had a similar situation of buyer that said he just came back from South America, he claimed to be a geologist....and since out of the country for a few years had no credit history. He insisted on pre-occupancy while his credit issues were cleaned up. He inadvertantly mentioned to me that he had also seen a few other communities, country clubs... Something did not sit right with me. After I dropped him off, I decieded to call around town on a hunch and found out he had written many other contracts the same day! When I confronted him he dissappered into the air!
What was interesting was a few years later I saw him on TV, it took the owners over 2.5 years to evict them from their mansion, and duting the meantime they were resonsible for taxes, mortgage payments etc...
I think there is a place for these, a small place, but a place nevertheless. Sure, there are horror stories, but NEVER is a bit strong.
Schrader Inc. - Mobile Home Financing Specialists For the most part, I am very comfortable with Never. They are harmless, as long as they do not blow up in your face. It only has to happen once.
Any preoccupancy agreement, to me, means a lease. That's where I become disassociated with the Buyer/Seller in regards to their decision to lease the premises to a buyer, who then becomes a tenant. Our broker managers advise we are not to take part in any lease or lease agreement and refer the parties to their own legal counsel for assistance on creating a lease or pre-occ agreement. Needless to say, the one and only pre-occ agreement I was involved with was handled just that way, without any direct involvement on the part of the real estate agents on either side, and it just went beautifully. The buyer was under agreement with the Seller until the purchase transaction settlement date, but it was an agreement not tied to the sale transaction whatsoever -- and it worked out great for all the parties.
Kathy Brown Sells Northern Colorado (RE/MAX Alliance) I disagree wiht a lease position. With a lease there are rights. Our pre-occupancy agreement specifically avoids any terms of lease.
"Buyer acknowledges that this Exhibit is not intended to create a relationship of Landlord and Tenant between Seller and Buyer. Instead, this Exhibit merely grants Buyer a right to occupy Property prior to the consummation of the sale so long as Buyer is not in default under the terms of the Agreement and this Exhibit. In the event that the sale is not consummated by the closing date or in the event that Seller terminates the Agreement pursuant to paragraph eleven of this Exhibit, Buyer shall immediately vacate Property, shall return all keys to Seller, and shall pay all costs of any legal action instituted by Seller to enforce the terms of this Exhibit, including reasonable attorney's fees."
Jim, first a great post. Second, was watching HGTV and the new show was about letting the buyer "sleep on it", meaning they actually slept in the home they were contemplating buying. I thought who in their right mind would allow this to happen.
Russ Lenich Naperville, IL Homes (Baird & Warner) Thanks for bringin it up! HGTV has some serious issues with viewer credibility. These are the folks that tell you you can flip a home and make a profit but never talk about short term gains, tax consequences, commissions and real net to seller. IMHO, totally bogus and mde for TV, not the real world.
Nea - Hire a lawyer.
I'm pondering this issue. Did this once and it worked out OK because the buyer was going to pull the plug on the deal (seriously). I advised against it but moved ahead with a great deal of protection for the seller (I represented the buyer).
Another example where I was the listing agent and the buyer's agent gave the buyers the key from the lockbox without me knowing it. The property was scheduled for closing 2 days later. I found the buyers had re landscaped the entire front yard at a cost of a bunch of money (without a pre possession agreement). The loan fell through at the last minute because of a personal issue on the part of the buyers. Unfortunately it was their loss and the new buyers gain.
I'm sure there are a lot more horror stories out there.