A written agreement to move into a house prior to the close of escrow can be know as a pre possession agreement, pre-closing occupancy or early move in agreement. Regardless of the name, this addendum allows the buyer to move in prior to the buyer owning the home. This adds additional risk for the seller. Agents have a responsibility to advise their clients to seek professional counsel prior to entering into a pre possession / pre closing occupancy agreement.
Understanding the risks of entering into pre possession occupancy
The risks of Arizona pre possession agreements are many, for both the buyers and sellers but the greater risk falls onto the sellers. One of these is:
- What if the transaction does not close, and now the seller has a tenant and not a buyer? The video below can help educate the buyers and sellers on the critical elements of a pre closing occupancy agreement.
As discussed in a sister video regarding post possession agreements, clarifying who has responsibility for repairs and maintenance is another important element since the Arizona landlord tenant act contradicts the residential purchase agreement. Other elements include:
- Insurance. The insurance policy for each party must match the occupancy. The homeowner’s policy that the seller has had for years , no longer applies and must be changed. At the same time, the buyer soon to be owner needs adequate insurance.
- Additional earnest money/deposit. This speaks to the additional risk that the seller must bear. Should a portion or all of the earnest money be non-refundable and given to the seller if the transaction does not close?
- Term of agreement. There should be an end date to this agreement, hopefully ending with the close of escrow when the buyer becomes the new owner of the property. But what is the buyer cannot close, how soon does the buyer need to return the property to the seller?
- Contingencies. Are there any remaining contingencies? Or all they all waived just in case the buyer develops buyer’s remorse and is looking for a way to cancel the contract?
As admonished in the commissioner’s rule R4-28-1101 , buyers and sellers are counseled to get professional advice from tax, legal, insurance and tax professionals regarding the risks of Arizona pre possession agreement.
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