What are the Risks of a Post Occupancy Agreement?

A post-occupancy agreement, also known as a post-closing possession agreement, allows the seller to remain in the property they just sold to the buyer for a set period after closing. This can be a win-win for both parties in some situations, but it comes with major risks for the buyers. I have personally bought many houses with post-occupancy agreements and some worked out great while others ended in a costly eviction. A post-occupancy agreement may be needed in some cases but as a regular home buyer, I would be very careful ever accepting one.

What is a post-occupancy agreement?

In a typical home sale transaction, the seller and buyer agree to a closing date and time, and possession of the home transfers when that closing takes place. The sellers bring the keys and hand them to the buyers if they are both at closing. Or the buyers can pick up the keys or their agent can give them the keys if both parties are not at the closing table (my preference).

In some cases, a seller may want extra time to move out after closing. They may be waiting for their new house to close, or for a house to be built, or they might just want more time to move. This sounds like a reasonable request for the seller but it can come with major risks for the buyer. This is why I try to avoid post-occupancy agreements if possible.

The video below was a nightmare after a post-occupancy agreement went bad:

What are the risks of a post-occupancy agreement?

Many people have heard the stories on the news of a seller who will not move out of their home are they sell. Almost all of these situations come from post-occupancy agreements. During a typical sale, the buyer does a walk-through of the home to make sure it is clean, all the seller’s stuff is moved out, and the property is in the same condition as when they put a contract on it (unless the contract says otherwise). If there is anything wrong, the buyer can delay or even not buy the home.

When the seller is still living in the home and the buyer closes on it (completes the purchase), they cannot make sure it is clean, all the seller’s stuff is gone, or the seller is out. Some sellers want the money that is in their home but want to stay! If the seller does not leave after a post-occupancy agreement, the buyer cannot simply kick them out, they must go to court and evict them.

An eviction can take months or even years in some states like New York.

Why do I agree to post-occupancy agreements?

I am a real estate investor who works hard to get the best deals I can. I buy a lot of distressed properties that need work and many sellers have unique situations. I also buy from many wholesalers who make deals with sellers that I must agree to. In a perfect world, I would never do a post-occupancy agreement but in some cases, it is a take-it-or-leave-it situation and the deal is good enough for me to take the risk.

I would estimate I have some kind of problem with 30 percent of the post-occupancy agreements I do. For me, it is not as big of a problem as it can be for inexperienced homeowners or people who need to move into the home. I also have a YouTube channel that helps me recoup some of my losses with the crazy situations that occur. I also know how to handle evictions, squatters, and other situations where someone not as experienced could be completely lost on what to do.

How should a post-occupancy agreement be structured

There are also risks with how post-occupancy agreements are structured. Some people just agree to let the seller stay and maybe pay a little rent. The problem with this is there is no motivation for them to move out. When we do a post-occupancy agreement we try to make it painful if the seller does not hold up to their obligations and move.

The post-occupancy agreement should always be in writing and money should be held back in escrow from the seller proceeds. I like to hold back at least $10,000 on houses below $400k and if they do not move by a certain date, I get that $10,000 as the buyer. That may seem like a lot but an eviction and a few months of house payments can eat through that very fast. If you are buying a more expensive home, I would hold back much more.

I have seen many agreements that can be wishy-washy and not work out for either party. Some will charge a per diem if the seller does not move like $200 a day. It can be confusing when they are officially out, and when the dates officially start and proving when they are out. I have seen some people create a lease with rent charged and a deposit. You have to be very careful with this as many states have laws on how much the deposit can be compared to rent, how a deposit is paid back or kept, and the rights of the tenant after the lease is started. It is usually easier to evict a seller who does not move than a tenant with a lease.

Another crazy situation:

Should you agree to a post-occupancy agreement?

If you are a regular home buyer looking for a place to move into, be very careful agreeing to a post-occupancy agreement. I would make sure you love that house and have no other options. If you do agree, make sure there is a large enough penalty to make it worthwhile to you if the seller does not move. You also need to make sure your insurance is set up correctly, there is an agreement for who pays for utilities and there is recourse if the house is damaged during the extra time the seller lives there. It also helps if you have a YouTube channel where you can post crazy stories if something goes bad.

Conclusion

I am okay doing post-occupancy agreements if everything is set up correctly and that is my only option. But even as an experienced investor, I try to avoid them if at all possible. If you happen to live in a state with long eviction timelines I would be really careful agreeing to any post-occupancy agreement.