Own & Move-in Date of Your Next Home

The Smiths have bought their new home from the Joneses. Three days before the close of escrow, Mr. Smith did a 'walk-through' inspection of the property with his Realtor, and noticed that the Joneses had not started packing nor preparing to move yet. So he asked Mr. Jones if they could move out in three days, Mr. Jones said that there would not be any problem and they could move on time. Mr. Smith doubted very much that the Joneses would move out on the day of recordation of title. But what could he do?!

In the purchase contract of residential property, there is a clause stating the date and the time of possession, which is negotiable between buyers and sellers.

Generally speaking, the most common options for the possession date are as follows:

  1. Possession will be on the day of recording and transfer of title, that is the same day of close of escrow.
  2. For the convenience of the seller to move, the seller can retain possession up to 3 days after transfer of title, and the seller does not need to pay any rent to the buyer.
  3. According to the need of the seller, the seller may rent back from the buyer for a certain period of time (the number of days specified in the contract) before the buyer takes possession of the property.
  4. Buyer can take possession before transfer of title.
  5. When a rental property is bought, transfer of title before or after the tenants have moved out.

Generally, the first option is the simplest form of possession. In the second option, even though the seller does not need to pay rent, it is necessary that the buyer and seller sign a 'Residential Lease Agreement After Sale' before the close of escrow, specifying the number of days the seller can retain possession of the property after transfer of title, and stating that the seller does not need to pay rent to the buyer.

When the seller is going to rent back from the buyer as in the third option, then the buyer and seller should specify their duties and the amount of rent in the Residential Lease Agreement After Sale. For this kind of rental agreement, the rent can be calculated daily, based on the buyer's mortgage payment (i.e. principal, interest) and taxes and insurance. To prevent the seller from prolonging his stay, the buyer should provide that the rent will be doubled after the time limit. Also, the buyer and seller should notify their homeowner insurance companies that the seller will be renting back from the buyer, and obtain adequate insurance coverage, as risk of loss transfers to the buyer once he is the owner even thought he seller is still in possession.

In the fourth option, where the buyer moves in before the transfer of title, then the buyer and seller should sign an 'Interim Occupancy Agreement', so as to protect both of their rights. Though title has not been transferred, risk of loss does transfer, and buyer and seller must be able to obtain appropriate insurance coverage.

If a buyer is buying a tenant-occupied property as his primary residence, then the buyer should require in the contract that the seller will have the property vacant at least three days before the close of escrow, and repair or reimburse the cost of damages, if any. This relieves the buyer of the responsibility of evicting the tenants after close of escrow, should the tenants refuse to move out.
Applying these rules to our hypothetical case tells us that if MR. Smith was not in a hurry to move in, and there was not a loan commitment with his lenders to fulfill within a certain time limit, then it would be better to wait until the Joneses had moved out of the property before closing the escrow and transfer of title. Mr. Smith could also request Mr. Jones to leave a certain amount of money in escrow for the cost of cleaning up and repairing the damages of the property.

Actually, the possession date and time can affect quite a few parties; including the lenders, buyers' landlord, or seller who may be in the process of buying and moving into another house. In order to have a successful closing and transfer of title, the buyer and seller should plan carefully and agree on the date of possession as early as possible in the escrow period.