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In a real estate transaction, possession occurs when the buyer or renter takes control of a property after signing closing documents or the lease. After the sale is recorded with the local government and the purchase funds have been received by the seller, ownership of the property is also transferred to the buyer.
What does possession mean in real estate?
Possession is the final step in a real estate transaction. It means the new buyer or renter is officially given the right to occupy and use the property. They typically receive the keys to the property when possession is transferred.
Taking possession of a property as a renter means that you have the right to use the property according to the rules outlined in your lease. Taking possession of a property as an owner gives you the right to use the property as you wish, and also gives you the bundle of rights to that property.
What happens before possession can occur?
In a real estate purchase, the buyer and seller draw up a purchase and sale agreement for the property. Items on the agreement that are subject to negotiation include the purchase price, seller assistance with closing costs, the closing date, and fixtures (what items come with the home).
When submitting the offer, the buyer also includes a deposit known as earnest money. Earnest money will eventually go towards any closing costs for the home. If the buyer backs out of the deal, the seller may get to keep the earnest money. Once the buyer and seller agree on the terms of the deal, the home enters escrow.
Between the escrow date and the closing day, the buyer must complete a list of items to prove to their mortgage lender that the home is suitable for purchase. These items often include:
- Home appraisal
- Home inspection
- Pest inspection
- Environmental inspection
If the home rates poorly on any of these items, the buyer may lose their financing. To save the deal, the buyer and seller may be able to renegotiate the terms.
When the closing date arrives, the buyer should bring a certified check for any money that they owe on the purchase price, administrative fees or other closing costs.
Possession vs ownership
While they’re often used synonymously, possession and ownership are precisely not the same thing.
Possession means physically having or being in control of something, while ownership means something belongs to you, and you have all rights to it. It’s possible to own something and not be in possession of it — as when you loan your car to a friend, for example.
When purchasing a piece of residential real estate, you almost always gain ownership of the property — aka having title to it — at the same time you take possession of it. However, if you are purchasing a property that you immediately rent out, you take ownership of the property, but you don’t possess it.
Conversely, when renting property — like a home or an office — you have possession of it for the period of time specified in your lease, but you never take ownership of it.