Top-3 Takeaway: Post-Settlement Occupancy – the Pros and Cons

Sometimes a Seller may need to stay in the property after the transaction closes. This is frequently – and erroneously – called a “rent-back”. There are good and bad reasons to do this. Check out what the FOCUS on NoVA team has to say.

The “Post-Settlement Occupancy Agreement” is commonly referred to as a “rent back”. Please understand that when you’re doing a rent back this is not a lease. It’s an agreement for one party to stay in a property without a formal written lease agreement in place after they don’t own it anymore.

Why would you want to do this? Sometimes the logistics of moving is really tough and it can be hard to buy a property if you need to sell your home first. An option is to go ahead and get your property under contract with an agreement to stay in the property until you find and settle on a new property. That’s the long game. Short term wise, some people will maybe do a one to three day rent back where, after closing, you stay for two or three days in order to get your move and logistics in place before you move on to your next phase. It keeps you from being homeless and paying for storage for a few days, but there are pros and cons to this and it’s not for everybody.

In general a real estate agent, like myself, will advise you to probably not do that mainly because it muddies the water and there’s some complications, but sometimes it’s the right thing to do.

The top three pros to do this are as follows.

1. Security for the seller.
   You can do a standard closing, roughly 30 days, have all of your money and now move forward with your proceeds knowing that the sale of your home is done. That is a very powerful position to be in when making offers on other properties because you won’t have a sale of home contingency.
2. Timing.
   It can be tough to figure out where you’re going to be. Temporary housing is not for everybody. So if you are able to logistically move things around and make it work so that you can get to your next chapter by selling your house first, without having to wait till closing for later, that’s a bonus.
3. Leverage for the purchaser.
   As a buyer if you know your seller is trying to coordinate getting into a new property, needs closing, and you have the flexibility as the buyer to let them stay, add that into your offer. It just may be the term that when all other things are equal tips yours into the offer that is actually chosen by the seller.

So let’s take a look at why you wouldn’t want to do a post-settlement occupancy agreement.

1. A sizable deposit is on the line.
   You’ve just sold your house, your purchaser has given you all of their money and you have all of your proceeds, but you haven’t left yet. They’re going to want to keep a deposit in escrow at the title company just to make sure nothing untoward happens between the time of closing and when you actually leave the property. That deposit will be on the line.
2. Rent, or the fee to stay.
   Generally speaking it’s pretty high. If you’re used to no mortgage, or a mortgage that you’ve had for the last 15 to 20 years, it’s usually pretty low. Your purchaser who’s coming in is now at today’s price points and today’s mortgages, so it’s not uncommon for those mortgages to be a $1000, $2000, and even $3000 higher than what you’re used to paying on your property. Therefore as the person staying in their new home, you’re going to need to cover their principal, interest, taxes, insurance, and HOA fees.
   You’re also going to be responsible for the utilities and any type of repairs while you’re in the property. This is not a lease, they are not a landlord. You’ve been given permission to stay within that property and if something breaks it’s your responsibility.
3. Final walk through.
   You have just left the door open for potential renegotiation of the condition of the property, When you move out you lift up your rugs, you pull your couches away from the walls, and that purchaser comes back into the now totally vacant property, there might be a surprise there and now your big deposit, and potentially more, could be on the line. It can get messy.

There are really good reasons to do post-settlement occupancies, and there are really good reasons to not do them. Each one is specific to each person’s individual experience and the FOCUS on NoVA team is here to help you navigate whether or not it’s the good choice for you. Contact us today with any of your real estate questions.