Reader Question: I am selling my home myself.  What if the buyer wants to move furniture in before closing?  It is okay with me, but I want to do it legally. Thanks, Mary T.

Monty’s Answer: Your question is one of the thorniest situations in real estate transactions. The potential of alienating the buyer by saying “no” against all the advice you receive about the dangers of allowing an early move-in creates pressure in making the right decision. The reason for the pressure is the costs are substantial for both parties if something goes wrong. Storing furniture on a moving van, the costs of a double-move, lost time and additional payments and interest add up quickly. Here is what you need to do toward protecting yourself when allowing a potential home buyer to move in (or move furniture in) before closing:

What could possibly go wrong?

The purchase agreement must be amended to update drop-dead dates and acknowledge contingencies already satisfied. Include a pre-closing rental agreement that contains all the landlord and tenant rights and obligations. Some states have a pre-drafted rent-before-closing agreement that is a fill-in-the-blank proposition. While this may seem like too much extra work, many things can, and do, throw cold water on real estate transactions. Here are examples of the most common occurrences:

• The financing ultimately is denied. This situation creates new problems that often involve the ex-buyer wanting to stay in the house.

• It was intended to be furniture only, but they moved in, and then the financing failed.

• Damage comes in a variety of packages. A common one is the buyer starts a remodel project only to have the financing fail, at which time they stop the project in mid-stream. Animal damage, furniture move-in damage, and numerous other causes can create even more expense.

• The buyer finds unexpected condition issues or other circumstances in the home that cause them to renege.
• They can be difficult to remove after financing fails.

For these reasons and their first-hand experiences, the majority of real estate agents would strongly advise against allowing the buyer to store furniture or move – in before closing. Consider tempering that inclination to making the judgment based on the facts and the likelihood of the transaction succeeding. If it is a business decision rather than an emotional decision, and you have all the facts and trust them, letting them in early can work out favorably.

Important considerations

Negotiate a sufficient non-refundable earnest money deposit from the buyer that will cover your expenses, including legal fees, if the buyer fails to close for any reason. The lease should state they cannot paint, remodel or start new landscaping projects. Your attorney will have the proper language to include in the lease. ​

The rent price should be market value rent for similar properties. If the transaction craters, there should be a pre-agreed move-out date that includes a penalty. There should be a damage deposit and a Move-in, Move-out report as a part of the rental agreement. Photos of the condition of the house should be taken, and all the precautions a landlord normally takes to protect their property should be in place.

Have you spoken to the buyer’s lender to get first-hand the exact cause of the issue? Has the lender accepted the appraisal? Where is the buyer’s earnest money deposit? Will the buyer allow it to be transferred directly to you? Have you spoken to the buyer directly, or only through the real estate agent? Has there been any earlier miscommunications or uneasiness that caused you to be uncomfortable? If they are first time home buyers can they furnish you with a letter of recommendation from their current landlord? If they are moving from their former home have you driven by it? Taking steps like this are extra work, but they can do much to reinforce or cause concern about the business decision.

In a perfect world, an offer to purchase contract would contain no contingencies (except financing), with a very large non-refundable earnest money deposit in your bank account. The chances of a failure double if the closing of the sale of the buyer’s home is the issue.

Get expert help

There is always risk the loan will not be approved. A pre-closing occupancy agreement is not a do-it-yourself project. One mistake could cost you many thousands of dollars, frustration, and a lot of your valuable time. Here is a link on: http://dearmonty.com/8-tips-find-good-real-estate-attorney/.

“Richard Montgomery gives no nonsense real estate advice to readers most pressing questions. He is a real estate industry veteran who has championed industry reform for over a quarter century. Send him questions at DearMonty.com.”