What Is a Post-Settlement Occupancy Agreement?

Dec 13, 2022Buying Basics, First-Time Home Buyers, Homebuying Process

A post-settlement occupancy agreement isn’t standard practice in most real estate sales, but it can be a beneficial option for both sellers and buyers, depending on the situation. It may be frustrating not to move into the home of your dreams right away, but with a bit of time and consideration, an agreement can be sorted out so that both parties feel good about it.

As a buyer, you may also be doing the seller a great favor and getting a leg up on the competition in a tough market. A seller may have many reasons to request a post-settlement agreement with a buyer.

Whatever the reason, we’re breaking down what a post-settlement agreement is and why it’s essential to ask yourself some questions as a buyer before you jump into purchasing a home with a post-settlement agreement attached. Consult your EXCLUSIVE BUYER’S AGENT to fully understand the local norms relating to occupancy agreements in your area.

What Is a Post-Occupancy Settlement Agreement?

A post-occupancy settlement agreement is a contract between a buyer and seller for the seller to remain in the sold property for a longer period of time than is standard in a real estate sale. The term post-settlement comes from the fact that this extended stay for the seller occurs after the house has been closed on or after the settlement.

When Do You Need a Post-Settlement Agreement?

A post-settlement agreement may be necessary for a variety of reasons, including that:
The seller needs the proceeds from the sale to purchase their next home
The home is being leased, and the renters have a lease period beyond the sale date
The seller needs to remain in the area for work before relocation
The sellers have children and need to finish the school year before moving
The sellers have a home being built or need to complete the purchase of a new home before moving
The seller has family needs that require more time before moving out of the home

Whatever the situation, it’s important to know this agreement is mutual and is part of the total transaction. This scenario can be a great relief for sellers, making a move less stressful. And for buyers, the post-settlement occupancy can give them an advantage over other buyers in a competitive situation.

Common Rules for a Post-Settlement Occupancy Agreement

While no two post-settlement occupancy agreements are exactly the same, there are a few common rules that most agreements contain. Like virtually everything else within a real estate transaction, terms and conditions can be negotiated. Here are a few of the more common rules for an agreement between the buyer and seller.

The Homebuyer Is Not a Landlord In a Post-Settlement Occupancy Agreement

Most post-occupancy contracts can be no longer than 60 days. Reminder: The seller is not a tenant, and the buyer (new homeowner) is not a landlord.

The Agreement Has an Occupancy Deadline and Occupancy Charge 

The charge typically covers the cost of the principal, interest, taxes, and insurance (PITI). If you are paying PRIVATE MORTGAGE INSURANCE or ASSOCIATION FEES, those would typically be included as well. However, if you are using a large down payment or cash, then you’ll need to come up with a value with your agent. The occupancy charge is deducted from the seller’s proceeds at settlement.

In addition, the Seller typically provides a Security/Damage Deposit (Different terms are used in different markets). The security deposit is typically held in a non-interest-bearing account by the closing authority, which would normally be a title company or an attorney depending on the state.

At the end of the agreed-upon time, the buyer walks through the property to verify the condition. The seller should leave the property vacant, clear of trash and debris, broom clean, and in the condition required under the terms of the post-settlement occupancy addendum.

The Seller Agrees to Allow the Buyer Into the Property

This works best when both sellers and buyers respect each other’s schedule and space. In a perfect world, the sellers and buyers get along and agree to allow access to the property for reasonable requests. It’s possible for a seller not to want the buyer to enter the property, and they have a right to their privacy. The buyers have a right to access their property during reasonable hours of the day as long as they give the sellers prior notice. Keeping this balance can be a challenge.

Think Carefully Before You Enter a Post-Settlement Agreement

Forming a post-settlement agreement can be an easy idea, but it becomes challenging once the agreement takes effect. Sellers have an emotional connection to their home and a right to privacy. Buyers are excited to move in and want to get everything sorted before they move into their new home.

Before entering into a post-settlement occupancy agreement, ask yourself the following questions:

What Would Happen If The Seller Damages Your Home During Their Stay Or If They Overstay?

Enforcing the terms of an agreement would often involve discussions with a real estate attorney.

Are You Planning To Bring Contractors Into Your New Home? 

It makes sense to try and get estimates for renovations during a post-occupancy settlement, but be wary of how often you’re doing this. Once or twice may be fine, but more than that may disrupt the seller’s privacy. If the work can wait, do your best to hold off until the post-occupancy agreement is over.

As the Seller, Do You Understand That You No Longer Own the Home?

The new owners may need access to the home. Yes, you have a right to your privacy, but you also have signed an agreement saying the new owners can access the property to examine, maintain, repair, and/or protect the property from damage.

(Buyer & Seller) Can You Keep Your Emotions In Check?

Buying and selling a home can be a stressful time. Emotions are high since the seller is leaving their home, and the buyer hopes to coordinate their move and prepare their new home. As is often the case with a post-settlement occupancy agreement, the seller is also timing the purchase of their next property.

Post-Settlement Agreements Can Be a Great Solution

There are a lot of moving parts in the post-settlement occupancy scenario. Take a breath, be compassionate, and consider the other parties’ feelings and situations. Buyers and sellers can move confidently ahead and work together toward an amicable end to the post-settlement occupancy agreement.

If you’re concerned about a post-settlement agreement or considering one, reach out to your EXCLUSIVE BUYER’S AGENT to discuss how it can work for you.

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