A seller’s post-settlement occupancy agreement, also referred to as a rent back agreement, is when a seller intends to stay in the buyer’s home for a defined time after settlement. For example, the seller may need a grace period before moving from one property to another, or the seller might need time to find another home.
Should the need for this agreement arise, a post-settlement occupancy agreement addendum is typically added during the contract’s ratification between the buyer and seller. (It’s much easier to add a post-settlement occupancy agreement to the contract at the beginning of the process than if a seller has to ask down the line.) The addition lays out all the details regarding the consensus reached regarding how much the seller will pay for the time they will remain in the home.
The post-settlement occupancy agreement can be broken down into two parts. The first part is the cost and duration of the agreement, and the second part is the logistics of the property maintenance and risk of loss. In this blog, we will deal with the first part: How much will it cost the seller, and how long will the seller remain in the property?
When the agreement is necessary, there are usually two options…a flat fee or per diem reimbursement. The less common flat fee can either be a flat fee per day or a flat fee for the entire period of the occupancy. For example, the seller could agree to occupy the property and pay the buyer $50 per day for three days, or the seller could settle the property and pay $150 for the entire occupancy period. The other option is to reimburse the buyer for their per diem carrying cost of the property. At settlement, the buyer becomes the property owner, and they have expenses for owning the property. These costs include Principal and Interest on their loan, Taxes, Insurance, and Condominium Fees or Property Owners’ Association Fees (if applicable). Essentially, the agreement is in place not so the buyer can make or lose money; it’s there, so the occupancy does not cost the buyer anything additional.
The purpose of the post-settlement occupancy agreement will determine just how long the occupancy agreement lasts. It may only be necessary for a couple of days to give the seller time to move out of their home and into a new home they purchase a few days later, or the seller may need a post-settlement occupancy to give them a month or two to find and buy their new home. Of course, the buyer must agree to the occupancy length. One note to remember is that if the buyers are getting a loan where they decide to live in the property, then the post-settlement occupancy agreement cannot last for more than 60 days. After 60 days, the lender considers that property a rental property.
Our next blog will discuss how the agreement works if the seller moves out earlier than agreed upon and what happens if they overstay their welcome. If you have any questions regarding post occupancy agreements, please feel free to contact us here.