Should Buyers Allow Sellers Stay in the House After it Closes?

Should buyers allow sellers to stay in the house after it closes? This is a more common request than many realize and it can quickly become something that derails an otherwise solid contract. Buyers are handed the keys at the closing table; sellers are typically expected to be out at closing. In the Atlanta real estate market, this isn’t always the case. Since the boom-bust of the late 20o0’s, mortgages have become significantly more complicated due in large part to government meddling and oversight. Loan underwriting is done multiple times; often within a day of closing. Wires that used to take hours can now take a day or more. Wire fraud has become a concern and can derail a closing at the last minute.

And then there’s TRID – the TILA/RESPA Integrated Disclosure rule. Some call it the “know before you owe” rule; this is the government reminding buyers that they should understand everything they sign and ensure it’s what they agreed to. Before closing on a home purchase or refinance, buyers must receive a copy of their Closing Disclosure at least 3 business days prior to closing. If they have questions, their loan originator can provide them with additional information. Consider that and then consider all of the moving parts inside a contract – then consider how little control agents and clients have and how Timmy at that national lender cares less about your deal than his lunch order.

Many sellers and listing agents do consider all of the moving parts. Some seek a modicum of stability and ask to retain possession for 24-48 post closing. This allows the seller to move knowing the home has closed, no risk of delays. This benefits only the sellers, there is no benefit to the buyers. The seller doesn’t risk sitting in a hotel with goods on a truck hoping to close. And a delay is best case, if the deal fails to close for some reason, the financial hit and collateral damage can be huge.

Buyers want possession at close for a number of reasons:

  • It is their home once closing is complete.
  • What happens if someone is injured during this time, if the home is damaged, if something breaks? Most homeowner policies will not automatically cover use as a rental – which this will be. Who pays for mover damage?
  • What happens if the seller isn’t out on time or decides not to leave?
  • Seeing the home empty is much different than seeing it full; some damage may not be seen until after closing.
  • Who is paying the utilities? The carrying costs for a day or two?

If a seller remains at the home after closing for any period of time, a landlord-tenant relationship applies. A clear understanding of this – by BOTH parties – is critical before any agreement is reached.

Key thing to remember is that upon closing, this is technically a landlord-tenant relationship. Once closed, agents no longer have a role; if issues come up they are resolved between tenant (seller) and landlord (buyer). If escrow is held or rent is charged, the parties need to figure out where and how it’s held, along with terms of dispersion. In the past, closing attorneys might consider being a third party and handle this but that has all but disappeared. Those bullet points above come into play pretty frequently.

What both parties should consider:

  • Does your agent have the experience to understand this from each side? A hack agent will miss something and that can rapidly turn things sour, and there are far too many hack agents running around pretending to know this business.
  • Even with 24-48 hours post close occupancy agreements, use the appropriate GAR forms. These are designed for this specific purpose, better too much detail than not enough.
  • Is a walkthrough checklist needed? Security deposit for moving damage? Full lease? Pet amendment? Who is paying the utilities and mortgage? Will the insurance company cover a claim? Should the tenant get renters insurance?
  • Do you trust the seller/tenant? The buyer/landlord? How have they been to work with?

All of this is of course, the worst case scenario approach. That is exactly how things in real estate should be viewed because while it looks easy and boring, when things go wrong they go very very wrong and bad things tend to happen. Trust – but verified.

A level of trust has to exist between all parties involved, including the agents. It’s always best to get terms of possession out there early and if the other big things can be worked out, often this can be as well. It’s critical however to understand this from both sides and know what is at stake.

Questions? Maybe we should talk.

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