Dear Monty: Pay attention to occupancy when you make your offer
By Richard Montgomery
Reader Question: We closed on our home purchase in December. The contract calls for the seller to vacate 30 days after closing. The date and time set to deliver the keys and final walkthrough were today. This morning, the seller called to say they hadn’t finished moving out and requested six extra days. Our agent said there is money in escrow, and we can charge $100 daily for each day past the previously agreed upon occupancy date (up to $1k). We don’t have to be out of our existing home for another two weeks, so we are OK there.
Anticipating taking possession today, we’ve already switched all the utilities over, changed our mailing address, and scheduled deliveries. It sounds like we have no choice but to wait for the seller, and take the $100 per day. Is there anything else we need to know or should do? Any red flags? What if they have not moved out in six days, and exhaust their escrow fund? Other than rescheduling our deliveries, is there anything else we should be doing?
Monty’s Answer: One big red flag is that the seller waited until the last minute to notify you of this development. Another red flag is that you wouldn’t be contacting Dear Monty if your agent was providing the advice and counsel required in this situation. In addition to canceling the deliveries, call the utility company and rescind the name change. The seller should be paying the utilities. Ask your agent to drive to the house and observe the conditions. You may want to call the seller back and ask for permission to visit your property. One example of why this drive may be helpful is to determine if the seller even started moving out. Your goal now is to quickly ascertain if this is a minor bump in the road or something much more significant. Don’t let another six days pass without action. You are starting to bump up against your move out date. Do you have financial exposure at your current residence?
There is no mention of a penalty for failure to vacate on the appointed day. Is the seller paying your daily cost of ownership? Is there a security deposit in place? Who is responsible for routine maintenance? Do you have keys to the house you own? Depending on the value of the home and the wording in the contract, one hundred dollars a day may be an incentive for the seller to overstay their commitment. Here are additional steps to take:
- It is unclear what transpired in the conversation you had with the seller, but this extension should be in writing. Your agent should handle this task. Your job is to calmly inject more urgency into the minds of all the participants.
- Once you have a better sense as to the situation at the house, as evidenced by what remains in the house, what repairs or touch-ups are required, and how many people are performing the work, you may want to consider a call to your attorney for counsel. The seller has already missed one date they had a month to meet.
- Do you have a moving company? Keep them posted. Are there penalties or extra costs with the movers? Start a list of expenses as they occur to keep track of the additional costs.
Topics for the offer-to-purchase
In many instances, for the seller to occupy after closing and pay rent on a daily basis for some short period is an excellent practice. This negotiation is a conscious part of the offer to purchase with a well-drafted addendum or contingency. Some states have adopted a state-approved occupancy addendum for real estate agents to include with the purchase agreement to minimize future conflicts.
When closings are delayed, or fail, an adequately drafted agreement protects both parties. When the settlement takes place as planned, the agreement also includes the post-closing occupancy. There are a variety of reasons why sellers default on the agreed-upon move out date. Most causes are valid, yet some reasons are duplicitous and self serving.
Topics included for discussion in a pre-printed addendum are; identify premises; occupancy period; prepaid occupancy charge; prepaid security deposit; utilities; maintenance; keys; owner inspections; property taxes; termination; use of premises and hold harmless language.
While the excitement of the purchase is the focus of the real estate transaction, the most significant angst can appear long after the execution of the contract.
Richard Montgomery is the author of “House Money – An Insider’s Secrets to Saving Thousands When You Buy or Sell a Home.” He is a real estate industry veteran who advocates industry reform and offers readers unbiased real estate advice. Ask him questions at DearMonty.com.