CAN YOU STAY IN YOUR HOME AFTER SELLING?
In the last few months of 2023, we purchased a home in Portage County, Ohio in a quick cash transaction in a scenario where the seller wanted additional time to stay in the home after closing. We posted a video of that property here.
The seller had secured a lease for a new property they would be renting after they sold to us, but the date they would be moving into their new rental home was a few weeks after the closing date of our purchase. Moreover, they wanted to use some of the funds from their sale to us for their moving costs, so they needed to wait until those funds hit their account before moving.
This is a completely manageable scenario for both buyer and seller.
A seller can continue living in their home after selling as long as they have agreed upon the terms of their stay with the buyer, which is sometimes referred to as a “lease-back agreement” or “rent-back agreement.” The terms will include things like (1) rent payment, if any, (2) move out date, and (3) responsibilities for utilities, maintenance and insurance.
This article will explain specifically how we address this situation to give sellers the extra time they need and will show some specific provisions we use in our agreements.
While we buy homes in Ohio, similar principles discussed below can be applied wherever you live. Just make sure you are familiar with your local laws by consulting with appropriate professionals.
TABLE OF CONTENTS
Why Sellers Stay in their Homes After Selling in Ohio
How Long Can a Seller Stay in an Ohio Home After the Closing?
What is a “Rent-Back” or “Lease-Back” Agreement and How Do They Work?
What is an Example of a Rent-Back Clause?
Does the Seller Pay Rent if they Stay in an Ohio Home After Selling?
- How Much Rent Does a Seller Pay if they Stay in an Ohio Home After Selling?
Does a Seller Pay a Security Deposit When they Stay in the Home After Selling?
Who is Responsible for the Ohio House when a Seller Stays After Selling?
- Who is Responsible for Maintenance and Repairs when a Seller stays in the Home After Selling?
- Who is Responsible for Utilities when a Seller stays in the House After Closing?
- Who is Responsible for Insurance when a Seller stays in the Home After Closing?
Will it Affect the Sale Price if a Seller Wants to Stay in the Home After Selling?
- The Market Temperature Will Determine Whether a Seller Staying Affects the Sale Price
- A Good Deal Will Determine Whether Seller Staying Affects the Sale Price
- The Type of Buyer Will Determine Whether Seller Staying Affects the Sale Price
What Happens if the Seller Refuses to Leave at End of Post-Sale Occupancy Agreement?
Post Sale Occupancy Agreements Work Well for Buyers and Sellers
Why Sellers Stay in their Homes After Selling in Ohio
In most real estate transactions, by the time the sale closes the seller has already moved out of the home. On the day of the closing the seller provides the keys to the buyer, and the buyer has complete access to, and can begin moving into, their new home.
About 20% of the time, however, sellers request some additional time to remain in the property after the buyer has officially become the new owner.
Sellers may make this request because they need additional time to move into a new home they have already purchased or leased, need time to find a rental or a new house to purchase, need time to arrange for the storage of belongings, or any number of other reasons.
While not all buyers will be flexible enough to allow a seller of an Ohio home to stay after closing (particularly if the buyer needs to move their own family into the home quickly), cash buyers of homes in Northeast Ohio like us are completely fine with this arrangement.
How Long Can a Seller Stay in an Ohio Home After the Closing
There is no law or regulation stating exactly how long a seller can stay in a home after selling.
The reality is that the amount of time a seller can stay in their home after selling is entirely based on a mutually acceptable agreement with the buyer setting forth in detail the terms of the seller’s extended stay.
Therefore, as a seller, it will be very important for you to be clear about how much time you need and to convey this to any buyer before you enter contract.
By discussing with the buyer your need to remain in the home for a specific amount of time after the sale, and having this conversation before you have signed anything, you can make sure that specific, enforceable language is added into the purchase and sale contract.
What is a "Rent Back" or "Lease Back" Agreement and How Do They Work?
When a seller wants to stay in a home after selling, this is properly accomplished using what is sometimes referred to as a rent-back or lease-back agreement. Frankly, these agreements should be thought of no differently than short-term rental agreements or longer-term lease agreements, depending on how long the seller wants to stay.
Whether referred to as a rent-back agreement or a lease, these agreements have the same ultimate purpose, i.e., to give someone who is not the owner of the property the right to stay in the home for a set period of time and under specific terms.
All the same issues that can come up with short term rentals or longer-term lease agreements (property damage, insurance issues, utility expenses, termination dates, etc.) are relevant to rent-back agreements between buyers and sellers.
In Ohio and in many other states, the local realtor’s association produces forms which are entitled, “Post-Closing Possession Addendum,” or “Seller’s Occupancy After Closing,” and similar language (remember, whatever they are called, they serve the similar purpose of allowing a seller to stay past closing).
These forms go into detail with provisions governing the key terms of the seller’s post-sale occupancy of the home, including, but not limited to:
(1) The exact amount of time the seller is allowed to remain in the home;
(2) The daily or monthly payment owed to the buyer by the seller, if any (e.g. while we do not typically charge anything if the seller only needs to stay for a reasonable amount of time post-sale, some buyers will charge a daily rate);
(3) Any portion of the buyer’s purchase price that will be held in escrow during the seller’s post-sale occupancy (i.e. held by a trusted third party that is neither the buyer nor the seller) and transferred to the seller when the seller moves out;
(4) The buyer’s right to inspect the home during the seller’s continued occupancy;
(5) Responsibility for maintenance, repairs and utilities;
(6) Obligations of buyer and seller to obtain insurance covering the home and the seller’s belongings that remain in the home; and
(7) The consequences if the seller stays beyond the agreed-upon move out date or fails to pay agreed upon rent (if any).
What is an Example of a Rent-Back Clause?
The following is an example of a simple rent-back or lease-back agreement clause establishing the seller’s right to continue occupying the home after selling:
Post-Closing Occupancy. Seller shall be permitted to continue to occupy the Property after the Closing until ____:____ A.M./P.M. on [INSERT SPECIFIC DATE] (the “Termination Date”). Nothing contained herein shall impose any duty on Purchaser, whether express or implied, to permit Seller to continue to occupy the Property after the Termination Date.
Keep in mind that a rent-back or lease-back agreement will have numerous other clauses, specifically covering issues like rent payments, hold-back of portion of the sale price from the seller until they move out, the seller’s responsibility to maintain the home while they live in it, whether the seller will be obligated to obtain a renter’s insurance policy, late fees and other penalties for failure to move out or pay rent, etc.
For example, the following is a provision that will sometimes be used to hold back a portion of the purchase price from the seller until the seller moves out of the home. While we use this provision in our purchase agreement, variations of this can sometimes be found in rent-back agreements:
Out of the Purchase Price, Title Company shall hold in escrow the sum of _____________ ($__________) (the, “Escrow Hold”) after Closing until such time as Buyer informs Title Company in writing that Seller has fully vacated the Property (the, “Vacancy Notice”). Upon receipt of the Vacancy Notice from Buyer, Title Company shall release the Escrow Hold to Seller. If Seller does not vacate the Property within _________ (__) days following the Closing, Buyer may inform Title Company that Seller has breached Seller’s obligation to vacate, and Title Company shall immediately release the Escrow Hold of _______________ ($_______) to Buyer, such sum shall be the sole property of Buyer, and Seller shall have no further rights thereto.
While these are just some examples, a well drafted rent-back agreement will look in many ways like a typical rental agreement, or at minimum will cover many of the fundamental concepts that would be covered in a typical lease. That is the way it should be, because the dynamic is fundamentally the same (i.e. the owner of the home is granting temporary occupancy rights to a non-owner).
Does the Seller Pay Rent if they Stay in an Ohio Home After Selling?
For many buyers (including us), whether or not the seller will pay rent if they stay in the home after the sale will depend on how long the seller wants to stay. For example, we would typically never charge a seller if they wanted to stay for 1-2 weeks after the sale. We have even gone as long as a month without charging.
However, it is important for sellers to understand that every day they occupy the home is a day that cash buyers like us cannot start cleaning up the home and making progress on the renovation.
That means we are delayed in how quickly we can rent out or sell the home, and that means we are carrying costs like property taxes, insurance, mortgage debt, etc. that we are paying out of pocket while we wait.
Therefore, if the seller wants to stay longer than a reasonable amount of time (e.g. 1-30 days), it becomes important for sellers to understand that the stay cannot be free indefinitely.
How Much Rent Does a Seller Pay if they Stay in an Ohio Home After Selling?
Some buyers will simply charge the seller the then-current “market rate” rent if the seller wants to stay in the home after selling.
We handle the rent element a little differently.
If a seller wants to stay a bit on the longer side (e.g. longer than 2 weeks), we typically will charge something less than market which represents a reasonable estimation of our daily costs to own the home.
However, if the seller’s intended length of stay is so long as to essentially be a normal rental term (e.g. greater than 30 days), it becomes quite reasonable to charge something that starts to look like average rent for the area.
Notably, the seller does not need to come out of pocket for any rent expense. This is why upfront communication about the seller’s needs is so important.
To take an easy example, let’s say the seller wants to stay in the home for 2 months after selling and explains this to the buyer before a contract is signed. Let’s further say that market rent for the home is $500.00.
If we were the buyer, we would likely offer the first month free of charge and simply add a clause to our purchase contract which holds back an additional $500.00 of the purchase price for the second month. If the seller leaves before the second month begins, then we would release the held back $500.00 to the seller. If the seller stays, we would keep the held back $500.00 and consider it the seller’s rent payment for the second month.
This way, the seller does not need to worry about having the rent money available to them. It simply comes out of our purchase price.
Does a Seller Pay a Security Deposit When they Stay in the Home After Selling?
Any occupant of a home can accidentally cause damage which then results in repair expenses. A seller who is living in the home they just sold is no exception.
It is therefore reasonable for a buyer to want something similar to a security deposit from a seller who will continue to live in the home after the sale. This gives the buyer something to fall back on if the seller does any damage.
However, just like the scenario with the payment of rent, there is no reason that the seller should have to pay a security deposit out of their own bank account.
In a similar fashion to how we handle rent, it is possible to simply hold back a sum equivalent to a normal security deposit (1-2 months of market rate rent) from the purchase price.
When the seller ultimately moves out of the home, an inspection can be completed to determine if the home was damaged beyond the condition it was in when the sale originally closed (a seller certainly should not be charged for any damage that was already there when the buyer first made the purchase offer).
If there is not any new damage, the held back funds can be transferred to the seller.
The holdback of rent and security deposit can often be lumped into a general holdback of a small percentage of the purchase price until the seller moves out.
Who is Responsible for the Ohio House when a Seller Stays After Selling?
A typical landlord-tenant relationship for a single-family home would involve (1) a landlord being responsible for elements of the home that break due to ordinary wear and tear (i.e. ordinary use, old age, etc.) and (2) the tenant being responsible for anything they break due to negligence and improper use (e.g. flushing things that shouldn’t be flushed down the toilet, tearing a window screen accidentally, etc.). Tenants in single family homes are also typically responsible for all the utilities, snow plowing, and in many (but not all) cases, mowing the lawn.
Given the similarities between a seller who stays in the home after selling and a tenant who does not own the home but lives in it, it is reasonable for a seller who stays to be given very similar responsibilities.
Who is Responsible for Maintenance and Repair when a Seller Stays in the Home After Selling?
Normally, when a seller stays in the house after the closing, they will remain responsible for insuring that the house stays in the same condition as it was before the sale to the buyer closed. A big exception to this responsibility is what is referred to as “ordinary” or “reasonable” wear and tear.
For example, a seller would not be responsible for a drip leak that developed after the sale closed from a very old kitchen faucet that is worn out from age. A seller would be responsible for repairing a window that broke after the sale closed because they threw a baseball and missed their intended target.
However, and it is an important caveat using the example of a broken window: (i) if there was a broken window in the house before the sale closed and (ii) if there was no agreement with the seller that the seller would be the one to fix it before the seller moved out, then the seller would not be responsible for repairing the window.
The key distinction is that, absent a written agreement between the buyer and seller to the contrary, any existing damage in the home before the sale closed is not the seller’s responsibility to repair, even though the seller continues to live in the home. It is only damage that occurs after the sale closes and while the seller is still living in the home that can be the seller’s obligation to repair absent an agreement between the buyer and seller to the contrary.
Who is Responsible for Utilities when a Seller stays in the House After Closing?
When the property that was sold is a single-family home and the seller continues to occupy and use the home after the sale, the seller will typically be responsible for 100% of the utilities costs.
This is for the simple reason that as long as the seller continues living in the home they are in control of, and are receiving the benefits of, all of the utilities that they are using.
However, if the property was a two-family home with both units occupied after the sale (one with the seller and one with a separate tenant), there should of course be an equitable division of the utilities’ costs between the seller and the other tenant.
Who is Responsible for Insurance when a Seller stays in the Home After Closing?
When an insurable event occurs (fire, tree falling, pipe bursting), insurance companies will often look for ways to avoid paying the claim or at least for ways to avoid paying the full value of the claim.
If there is a non-standard situation when the insurable event occurs (e.g. the seller has not moved out of the home after selling), that adds to the risk that the buyer’s insurance company will deny a claim because the buyer was not living in the home.
Separately, there is a risk that the seller’s insurance company will also deny the claim because the home has been sold.
When we purchase homes where the seller is staying after the closing, we do two things to protect against the above-mentioned risks.
(1) We inform our insurance company in writing that the seller will be staying in the home for the agreed-upon time frame, and make sure to get a written response from our insurer confirming that they will cover any insurable event (as defined in the policy) that occurs during the seller’s continued occupancy;
(2) Depending on the seller’s financial situation and needs, we will either pay for a renter’s insurance policy ourselves or ask the seller to pay for one. This is something that can also be paid for out of escrow so that the seller does not need to come out of pocket for the cost (although renter’s insurance policies are very inexpensive).
By taking the above two steps, we make sure both the seller’s possessions and the house itself is covered if there is an insurable event.
While we do not always ask sellers to pay for their renter’s insurance policy, it would not be unreasonable for a buyer to expect a seller to take care of this cost. After all, the protection afforded by a renter’s insurance policy is purely for the seller’s benefit.
If the seller has no items of value in the home (e.g. all that remains is used furniture that they have no interest in insuring) we will either pay for the policy ourselves or have the seller sign a waiver confirming that they accept all risk associated with an insurable event destroying their belongings.
Will it Affect the Sale Price if a Seller Wants to Stay in the Home After Selling?
A few factors will determine whether a seller asking to stay in their home after selling will affect the sale price of the home, including: (1) whether or not the home is in a hot seller’s market (i.e. if demand for homes is very high), (2) whether the house itself is a great deal or a hot property (i.e. it is possible to have an unpopular home even in a hot market), and (3) the type of buyer that is making the offer.
The Market "Temperature" Will Determine Whether a Seller Staying Affects the Sale Price
A hot seller’s market (i.e. where there is significant demand for homes from buyers and not a lot of homes for sale) will not only bring sellers top dollar for their homes, but will also lend itself to favorable contract terms for sellers. One such contract term that a seller can comfortably request in a hot seller’s market is for the right to stay in the home for a reasonable period of time after the sale.
As long as the seller’s request to stay in the home after the sale is reasonable (i.e. they are not asking to stay for many months), buyers are likely to agree to the seller’s request in a hot market without any aggressive negotiation over the purchase price, just so they have the most attractive offer and can purchase the home.
A Good Deal Will Determine Whether a Seller Staying Affects the Sale Price
Regardless of whether the market is hot or cold for sellers, if the home’s pricing (relative to other similar homes) is such that it would make a great investment for an investor, or would be great value for an owner-occupant, a seller will likely have a lot of leverage in getting favorable contract terms. Any reasonable buyer who is confronted with a good deal is not going to try to negotiate a price reduction just because the seller wants to stay in the home a bit beyond the closing date.
The Type of Buyer Will Determine Whether a Seller Staying Affects the Sale Price
Consider a typical buyer who is either renting a home or paying a mortgage on their current home and wants to buy and move into the seller’s home.
That typical buyer will not be able to shed their existing housing expense (i.e. terminate their lease or sell their current home) until they can move into the seller’s home.
For that reason, if a seller wants to stay in their home after selling, the additional time that the seller is in the home will create an additional cost for the buyer as the buyer continues to pay their rent or mortgage, which is added on top of the costs the buyer will now have in owning the seller’s home.
It is only reasonable then that this type of buyer will want to be compensated in some way to cover that added cost.
This compensation will sometimes come in the form of an offer that is reduced based on the amount of time the seller wants to stay in the home.
To create a simple example, if the buyer’s monthly mortgage, taxes and insurance on their home is $2,500.00/month and the seller wants to stay in the sold home for a month after the sale, the buyer might propose a $2,500.00 reduction in the purchase price (on top of any rent that the seller pays to occupy the home they just sold to the buyer) as compensation to the buyer.
Alternatively, if the buyer is an investor who has no intention of moving into the property, the calculation changes. The investor-buyer will certainly be considering the cost associated with the seller staying after closing (e.g. the delay it will cause to any renovation plans, to getting a paying tenant in place, to flipping the home, the cost of loan payments on the loan used to buy the home during the period when the seller is still living there, etc.).
However, the investor-buyer will not necessarily have the same urgency …. and if they take a long-term view of their investments (as we do) they will not have the same feelings of urgency as would a buyer who needs to move their family into the new home and shed their prior housing cost as soon as possible.
What Happens if the Seller Refuses to Leave at End of Post-Sale Occupancy Agreement?
Some might think there are special rules that would apply to a seller who stayed in the home after selling and refuses to leave when the rent-back or post-sale occupancy agreement has ended.
When a lease-back, rent-back or post-sale occupancy agreement has been drafted properly, there is no difference in treatment between a seller who refuses to leave and a tenant who refuses to leave when their lease has ended.
The buyer can immediately commence eviction proceedings against the seller, and the seller can not only get an eviction on their record (which will make it very hard for them to rent or buy in the future) but can also be held liable for all of the damages incurred by the buyer.
Those damages can include things like lost rent, the cost of the buyer’s current housing (if they have to continue to pay a mortgage or rent while they wait for the seller to be evicted), and other costs.
Post Sale Occupancy Agreements Work for Buyers and Sellers
As explained above, the post sale occupancy agreement (often referred to as a lease-back or rent-back agreement) is a straightforward solution to a seller’s desire to stay in the home they sold to a buyer. When drafted properly to include important provision covering rent and security deposits, the length of time the seller can stay, the penalties for failure to leave, and the responsibilities of buyer and seller during the seller’s post-sale occupancy, both parties will have a clear understanding of their rights and obligations. This will limit the possibility of future disputes and can leave both buyer and seller satisfied with a fair arrangement.
NOTHING HEREIN SHOULD BE CONSTRUED AS LEGAL ADVICE. I AM NOT AN OHIO LAWYER AND YOU SHOULD CONSULT AN ATTORNEY IF YOU NEED ANSWERS TO LEGAL QUESTIONS. THIS ARTICLE SIMPLY LAYS OUT APPROACHES WE USE IN OUR BUSINESS WHICH MAY OR MAY NOT BE RIGHT FOR YOU.
