Get Out Of My House! [Negotiations]

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by Osman Parvez
---A few years ago, I represented a buyer on a residential property where the seller didn't want to leave.  The seller was emotionally attached and really didn't want to sell the house.   They were elderly and had health issues.   The cost of medical treatments were driving the sale.

Fortunately, my buyers were understanding and flexible.    We not only allowed the seller an extended period to vacate, Dallice and I even acted as intermediaries in handling rents and attending to maintenance issues.

This is not a recommended business practice.    As you'll soon learn, all manner of chaos can ensue.

The Seller Rent Back Scenario

So, what happens if the seller want to rent back the house?    It's far more common that you might think.

Perhaps the seller wants to ensure that closing occurs before making arrangements.    From the seller's perspective, packing up, paying for movers, and leaving is a risky proposition.    If the buyer walks away, the seller is typically entitled only to the earnest money and more importantly the seller is now stuck looking for another buyer.    This could push closing out 45 to 90 days, or more.

The Real Estate Commission knows it's a common scenario, so they've written a Post Occupancy Agreement to cover it (PCO70-8-12).   If you find yourself in this scenario and the term of the post closing occupancy is less than 30 days, this is the legal form you want to use.

With that said, it's a HORRIBLE idea.   Don't do it unless you have no other choice.   After closing, the former seller is now your tenant and if they stop paying rent or refuse to vacate, you will need to pursue eviction.    This is not a simple or a short process (i.e. it sucks!).  

Insurance is another potentially serious issue.  The seller likely had a standard homeowner's policy which ended at closing.    The buyer has a typical homeowner's policy which begins at occupancy.   This creates a GAP.   As the buyer, you need a different insurance policy, which likely will be more expensive.     During the insurance contingency period of the contract, you should approach your insurance company and request for the policy to begin at closing (not occupancy) and cover the property as a rental.   If the difference in cost is significant, the seller should be the one paying for it.

How Quickly Can You Evict?

I recently asked this question to a room full of property managers.   They said that it depends on a host of factors, but most likely about a month.    However - and this is a big caveat -  if the process is contested or there are procedural errors, it might take many months or even years to get your house back.     The process is fraught with hurdles and requires a court order.

Meanwhile, where are you going to live?    Don't forget, you will also be paying the mortgage and probably not collecting any rent.   Ouch.

Then it gets worse.   Let's say in a fit of rage, the tenant decides to trash your house.  Guess what?  Getting money for damages and lost rent can be even harder than eviction.    Good luck.

Should You Allow The Seller to Stay?

The short answer is don't do it.    When I've had a seller ask if they can stay in the house after closing, we have a discussion about security deposits, escrowed penalties for not moving out in time, and detailed lease terms.    That conversation usually convinces them it's not worth the hassle.

Remember my story about the elderly sellers with the medical problems?     It worked out just fine.   In that situation, the only way I could recommend my buyers consider it was because of my previous experience with the seller's agent.  He personally guaranteed the house would be delivered on time and as promised.   I still insisted on a lease agreement but in reality,  we both put our hard earned reputations on the line.  That's what got the deal done.

Final note:  I've helped many buyers find attractive investment property, but I don't usually handle the rent or deal with maintenance.   Property management is a very different business but this was a very special situation and the sellers circumstances required a degree of delicacy.
---Note: Our goal is to provide exceptional service to our clients. The ideas and strategies in this blog post are the opinion of the writer at the time of publication. Silver Fern Homes recommends careful and complete due diligence before buying or selling real estate or other investments. Consult with your professional advisers before making financial decisions. This article is not intended as legal, tax, or investment advice. Silver Fern Homes will not be held liable for investment choices derived from this article.