In the Boulder-area market, possession of a home most commonly happens upon delivery of the deed. In other words, the home buyer hands over the money, the seller hands over the keys, and then the home buyer moves in. This is really the cleanest way for a closing to happen. There is no question who owns the home when ownership is transferred. The home is usually clean and empty for the home buyer’s walk through prior to closing. Yet in this method of possession, the seller is at the greatest disadvantage if they have moved out and the home buyer fails to come to closing.
In some markets, it is common for the home buyer and seller to negotiate possession three days after closing. This method of possession eliminates the seller’s risk in the event the home buyer fails to come to closing and the seller needs to move back into the home. However, in this case, the home buyer’s risk has now increased. The home buyer does not have the opportunity to view the home clean and empty prior to closing. Then what happens if the seller causes damage when moving out? Or if the house burns down between closing and possession? What happens if the furnace fails between closing and possession?
As the real estate contracting process has evolved over the years, the Colorado Real Estate Commission has developed a standard form called the Post-Closing Occupancy Agreement (Seller Rent-Back Agreement). This form outlines the agreement between the home buyer and seller to cover all the issues involved in post-closing occupancy. In the event of a three-day possession as described above, this agreement is the perfect solution for laying out a plan for the post-closing occupancy period.
Nevertheless, in many circumstances, especially in hot markets, the home seller might want more time to move out and might be able to negotiate a longer post-closing occupancy. The seller’s desire to stay longer creates a myriad of challenges similar to the three-day possession above, but further magnified. If the seller is still in the house, who will pay for insurance and utilities? Does the seller pay any rent? What about a security deposit? What happens if the water heater breaks and the seller is still in the house, but the buyer owns the house? What happens if the seller causes damage during move out?
Post-closing occupancy agreements have been around for years. In the distant past, when it was not an approved form, an attorney had to prepare such an agreement. With demand for a standard form, the Colorado Real Estate Commission devised the Post-Closing Occupancy form – and it’s been wonderful! It covers the various questions discussed by all parties in order to ensure a fair agreement.
The first approved form developed by the real estate commission was a 30-day Post-Closing Occupancy Agreement. After receiving feedback, the commission produced the 60-day Post-Closing Occupancy Agreement. Anything negotiated beyond 60 days possession must be prepared by an attorney. The primary reason the Post-Closing Occupancy form is limited to 60 days is that in an owner-occupied closing, the home buyer usually signs a deed of trust whereupon they promise they will be moving into the home within 60 days. If the Post-Closing Occupancy Agreement is for 90 days, the buyer will be in violation of the terms of the deed of trust.
The Post-Closing Occupancy form can be attached to the contract initially, possibly to make the more offer more attractive to the home seller if the seller hopes for a longer time to deliver possession. As a home sale evolves, there might become a need for the seller to request a Post-Closing Occupancy Agreement from the buyer. However, later in the process, the seller is at the mercy of the buyer as all parties have already agreed to a specified time for closing and possession. The buyer might be agreeable, but they may have already arranged for movers and no longer have flexibility.
The Colorado Real Estate Commission approved form has 17 sections laying out all the details of a Post-Closing Occupancy situation. The key points that a home buyer and seller need to agree upon are:
- Who will maintain the property relative to lawn moving, snow removal, etc.
- Who will maintain, repair, or replace the operating systems of the home, such as the furnace, if required during the post-closing period
- Specifying a notice period if the home buyer needs to enter the property
- Amount of the rent home seller will pay, and how and when it will be paid
- A specified dollar penalty if the home seller is unable or won’t deliver possession at the agreed time
- Agreement as to who will pay for water, sewer, gas, electric, and any other services the property uses
- A security deposit if the seller were to cause damage upon move out
- Agreement as to insurance coverage for both seller (now a tenant) and the buyer (now a landlord)
Using a Post-Closing Occupancy Agreement with all the issues discussed and agreed upon can be a great tool for creating a seamless home sale to meet the needs of all parties involved. Your Realtor® and/or your attorney can help you decide whether or not a Post-Closing Occupancy Agreement is right for your particular transaction.
By Duane Duggan. Duane Duggan has been a Realtor for RE/MAX of Boulder in Colorado since 1982 and has facilitated over 2,500 transactions over his career, the vast majority from repeat and referred clients. He has been awarded two of the highest honors bestowed by RE/MAX International: The Lifetime Achievement Award and the Circle of Legends Award. Living the life of a Realtor and being immersed in real estate led to the inception of his book, Realtor for Life. For questions, e-mail Duane at DuaneDuggan@boulderco.com, call 303.441.5611 or visit boulderco.com.