More rigid lending practices have led to an increased number of closings on property purchases being delayed or not occurring on the scheduled date.
As a result of these common delays, the practice of a seller occupying the property after closing has also become more common and is now being negotiated into contracts from the onset. Occupancy after closing is not a bad practice as long as the terms of the occupancy are agreed to by all parties in writing to avoid any misunderstandings or complications.
Like any contract, an occupancy agreement must have the length of term, or how long after the closing the seller may occupy the property, denoting the day and hour possession is to be given. Deadlines are important to clearly define so that movers, painters, utility transitions, etc., can be scheduled.
Will there be any monies involved in this extended occupancy? This could be in the form of a deposit held by the new owner or the closing attorney to cover any damages to the property that may occur after the closing but before possession is given to the new owner. If the occupancy is more than a couple of days after the closing, the parties may wish to negotiate a daily amount of compensation to be paid by the seller to the new buyer for use of the property. This amount is usually paid in advance and is separate from any deposit that may be held.
Who pays for the utilities during the occupancy period and when will they be transferred to the new owner are also common points to agree upon so no one unexpectedly ends up literally and figuratively in the dark. While the purchaser’s homeowners insurance to protect the structure takes effect the day of closing, the seller who is occupying the property should also seek extended insurance coverage on their possessions during this interim period. By planning ahead, neither party will be at loss should there be a fire or natural disaster that negatively affects the property or its contents.
A buyer may question why a seller would want the right to stay in the property after the closing versus giving possession at the time of closing. Prior to the financial crisis of 2008, it was a common practice for a seller to have all items loaded and removed from a property on the day of closing and to give the keys at the closing table. Since 2008, however, it has become more common that closings do not take place on the originally scheduled date, being delayed as files languish in underwriting. While all parties typically enter into a contract with the best intentions, delays do sometimes occur and, thus, this practice of occupancy after closing has become more common.
An experienced Realtor with the Greater Chattanooga Association of Realtors can assist you with these negotiations and related agreements to ensure a smooth transition from seller to buyer.
Mark Hite is president of the Greater Chattanooga Association of Realtors.