Dear Monty: Occupancy at closing is risky for the home seller
Courtesy of Richard Montgomery
Reader question: My property is for sale. It has been my primary residence for 40-plus years. My Realtor wants to know if an offer were made would I be willing to vacate the premises upon the day of closing? What if I move all my belongings into storage and the buyer backs out of the sale at the last minute? Is this a good idea when it is only a month until the closing date? I have no idea yet where I will go or stay, as I have no other property or house picked out. Should the price the buyer offers influence my decision? Please advise. Jim D.
Monty's answer: Hello, Jim, and thanks for the question. Your hunch is correct. The best solution is to rent back the home for some time, possibly 30-60 days after closing. This solution would eliminate the potential financial risk involved in spending money before having the money to spend. Unfortunately, the situation described is one of the common occurrences in real estate transactions today. Another option is to rent an interim home to give time to consider your options and look around. This option requires a double move, as does the storage unit.
If the buyers are making their proposal a cash transaction with no other contingencies except proof of funds and they are making an earnest money deposit that will more than cover your expenses for moving out on the day of closing, then it may work. It is rare that real estate transactions are written this way. Inspections, financing, appraisals, and a cadre of other common contingencies are the norm. The time required for contingencies may chew up the bulk of the month until closing. Then, at the eleventh hour, a dreaded phone call comes: “The loan has been turned down.”
In terms of the amount of money being offered, be advised to separate the price issue from the occupancy issue. The price for which a home sells is a function of market conditions, the circumstances and motivation of the parties involved, the current history of activity and comments during the home’s offering period and more. A good real estate agent can overcome the occupancy question with the rent-back feature or other practical tactics. Occupancy is just one more negotiation. A seller should pay rent because at closing, the buyer now takes responsibility for a mortgage payment, real estate taxes, insurance and more.
When making an agreement with the buyer to rent-back after closing there are a number of issues that should be discussed to reach agreement. Insist these subjects be discussed and agreed upon in writing. This negotiation should become a part of the purchase agreement. Certain states or attorneys will recommend a separate rental agreement.
Here are the points to consider:
1. The identity of the property.