Understanding Post-Closing Occupancy

Whether writing an offer for our buyer clients, or helping our sellers evaluate offers they receive for their property, we generally divide the terms of an offer into three categories:

Financial Terms
Condition Related
Timing

Financial terms include things like price, mortgages, earnest money, and appraisals. Condition related terms focus on the buyer’s right to due diligence, including inspections, testing, condition reports, and the like.

Timing is so often an overlooked element of real estate, since so many “deal killers” can be found in the first two categories. When two parties disagree on price, it’s pretty much a non-starter, right? The same goes for things like major defects that a seller refuses to repair.

Once we get past those important obstacles, however, the matter of timing comes up again and again. Perhaps the general topic of timing can become its own blog post, but today we are going to focus on post-closing occupancy.

Post-closing occupancy describes a situation where a seller is allowed to stay in their property AFTER closing, meaning that the buyer has become the new owner but is permitting them to remain for some period of time. First we’ll talk about a couple of reasons for post-closing occupancy, and then we’ll run down some important terms you’ll need to take into consideration when incorporating post-closing occupancy into a transaction.

Reasons for post-closing occupancy can vary, but they usually center around the fact that the seller either hasn’t found a new place to live yet, or they won’t be able to move into it for several days weeks. One may wonder why the closing date isn’t just moved later. There are several reasons for this as well. Perhaps the seller needs the proceeds from the sale to pay for their new house purchase, but the new house needs some work completed before they can move in. Perhaps the property is a summer cottage and the sellers need the funds to pay for college tuition, but they want to spend one last summer at their lake house. We could come up with many other examples, but you get the idea: the sellers need the money but aren’t ready to move just yet.

Of course, we’re more likely to see post-closing occupancy agreements during a “seller’s market”, since that’s when sellers have the most leverage. With several buyers fighting over one property, one can see why it’s easier for sellers to negotiate such an arrangement, since it mostly benefits the seller. There are times when a listing will actually state that the seller will prefer offers that provide some amount of post-closing occupancy over those that don’t.

The more uneven the negotiations (meaning: the more desperate the buyer is to get the property), the more liberal the terms of the post-closing occupancy agreement are likely to be. Here is a breakdown of the basic terms you’ll need to consider:

How long will the occupancy period last?

All good things must come to an end, and the seller will have to move out eventually, of course. Buyer and seller must agree upon a date and time by which the seller must be moved out.

Optionally, the fee for occupancy (if any) could be pro-rated if the seller moves out BEFORE the deadline.

How much will the occupant pay the new owner?

Sometimes (especially when the occupancy period is short), the occupancy can come at no charge, but many times, a daily fee will be calculated and multiplied by the days of occupancy to come up with a total “rent” amount. Again, this could be pro-rated for early termination, but often it is not.

Is there a security deposit?

Just like a tenant in a regular rental situation, the occupant may be required to make a security deposit at the time of closing. Following a final walk-through at the end of the occupancy period, this deposit will be refunded, minus compensation for any damages inflicted on the property during the occupancy period.

Who will pay the taxes, utilities, and other expenses during the occupancy period?

Each of these things can be called out separately as being the responsibility of either the seller (occupant) or the buyer (owner).

What happens if the occupant doesn’t move out by the deadline?

Naturally, the seller can’t expect to live on the property indefinitely. The buyer has the option of building a special charge per day the occupant stays past the deadline. Depending upon the situation, this number can be modest (enough to cover the owner’s expenses) to punitively high (enough to strongly discourage staying past the deadline).

One final point: It’s important to remember that your contractual relationship with you Realtor ends at the time of closing. This means that any agreement you have with the other party (whether you’re the buyer or seller) that extends beyond that time won’t include your Realtor. For example, you can’t count on your Realtor to organize things like the final walk-through at the end of the occupancy period, or to hold or distribute security deposits. All terms of your post-closing occupancy agreement will be up to the two principals (buyer and seller) to handle.

There is a special form, called the Addendum O, which the buyer’s Realtor will fill out with the terms mentioned above and a few other details. Of course, both parties must agree to all the terms before the offer can accepted. If you’re the buyer, it’s a good idea to reach out to the seller and find out if there are any terms that would be deal-breakers for them, or if there is anything you can put in the Addendum O that would give your offer an advantage over others.

Do you have any questions about Post-Closing Occupancy? We’d love to hear from you!