2 Potentially Dangerous Pitfalls to Watch Out for During Closing

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On average, it takes about 50 days to close a home once the contracting stage starts. But that discounts the 4.5 months it takes to find the right property to purchase in the first place.

Then there are the closing costs to consider. For buyers, they range from 2% to 5% of the buying price, while for sellers, they could be as high as 6% to 10% of the property’s sale price.

Unfortunately, the closing stage is necessary. It marks the completion of any real estate transaction and allows for the property transfer from the seller to the buyer. Only when it’s complete can you fully claim to have sold a house or become a homeowner. And that is also when a real estate agent can boast about successfully closing a deal.

However, the closing process comes with its own set of challenges for both buyers and sellers. And the two primary obstacles involve the buyer wishing to move in before closing or the seller wanting to stay on after closing.

So, it’s important to understand the potential dangers before agreeing to allow such an arrangement.

Seller Possession After Closing

Some sellers may want to stay on after closing for various reasons. They may not be ready to let go of the house yet. But it could also be that their attempts to buy a home fell through or got delayed. Regardless of the reason, you need to understand the issues that could arise if you agree to allow your seller to stay on after closing.

Damage to the Home

Some sellers can be malicious and may end up damaging the home they have just sold to you before they finally move out. If that happens, even if you get compensation from them, it may take a while and make it difficult for you to settle into that property as fast as you would like. And there’s a chance that some of the sellers may flee, making it difficult for you to claim damages from them.

Insurance Risks

If any fire, water, or environmental damages occur, it may become complicated to file the insurance claim paperwork as you transition to full home ownership.

There’s always a risk that the insurance company may refuse to pay you or drag its feet if it’s unclear which party’s coverage is responsible for paying the claims during the rent-back arrangement. And you may end up having to dig deeper into your pocket to cover the damage costs.

Squatting Sellers

If a seller is dishonest, the chances are high that they may choose to squat on your new property and refuse to leave willingly. You may need to use the legal eviction process to get rid of them. And that could take anywhere from five weeks to a year, depending on the delays you encounter. During that time, you would have to pay for alternative accommodation while also catering to legal costs.

Renovation Delays

It is much easier for contractors to renovate a home you have bought when nobody is living in it or if you reside in the home.

However, when a seller stays on beyond closing, they may not want renovations going on while they are in the home and can refuse to cooperate with any contractors you hire. So, it will take longer to upgrade your home and make it move-in ready for you and your loved ones.

How to Solve the Seller Possession After Closing Issue

If you allow the seller to stay on after closing, ensure you have a watertight rent-back agreement. It should spell out how long the seller will stay on, how much rent they should pay, and what you expect from them as temporary tenants.

But remember, you will be the landlord, which means you should carry out your responsibilities. So, for example, if the boiler stops working, you will be responsible for the repair costs.

If done correctly, the rent the seller pays can offset some of the closing costs you incurred when buying the property. On the other hand, the seller will enjoy the extra time to pack and relocate without a rush.

Buyer Possession Before Closing

Buyer possession before closing may happen when a buyer asks to move into your home before the property transfer process is complete. And it can also present its share of challenges.

Closing Delays

Studies show that about 15% of house-buying deals fell through in 2022 for various reasons. You should consider that as a home seller when a buyer wants to move in before closing.

For example, if your buyer’s financing falls through, the closing process will get delayed. And if that party refuses to vacate, you would need to spend time and money to evict them. During that time, you can’t sell the home, nor can you occupy it.

Negotiation Disadvantage

When you own a home that you haven’t finished selling yet, and the buyer already resides within it, consider yourself between a rock and a hard place.

An unscrupulous buyer can refuse to leave and use their presence in your home to negotiate and force you to reduce the price, or incur costs when evicting them. And your home will be the leverage.

So, you may be forced to pay more money to get rid of them or get less than what you wanted, so that you can complete the closing process quickly. Either way, it’s a tough financial place to be.

Damage Disputes

Your buyer may accidentally or on purpose destroy the things within your home. Since you will remain the homeowner until the closing process is complete, you are responsible for fixing anything damaged, even when the buyer occupies the property early. And if you don’t, that party may raise issues concerning the condition of your home, even if they are responsible for the destruction.

How to solve the Buyer Possession Before Closing Issue

In a buyer’s market, the competition among sellers is higher since the market conditions favor buyers. So, you may be forced to allow buyer possession before closing arrangements to stand out and sell faster. But proceed with caution.

First, consult your attorney or real estate agent. Then let them help you set the early occupancy terms and what the buyer will pay you to occupy your property before closing. Always ensure you have a binding and written early-occupancy agreement that comprehensively protects your rights as the homeowner.

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