Frequently sellers are finding themselves in a difficult situation when they go to sell their home.
The balancing act of buyer and selling is like the age old dilemma… which came first? The buy or the sell? (You thought the question would be more ‘fowl’, didn’t you?)
In a normal market, it’s a lot easier to sell a potential Buyer Contingency to a prospective Seller when making an offer. (Buyer Contingency is when you, as a buyer, have to sell your home in order to have sufficient funds or financing)
In a Buyers Market, the leverage is yours, you would put your dream home under contract before even listing your home. However, in a Sellers Market… you put your home on the market, and usually get through the inspections and contingencies before you even think about putting an offer in on another home.
With the contingencies stretching out to the near end of the contract, how do you manage that?
In some cases, as the seller with the leverage, you would ask for a Sellers Post Possession.
A Post Possession means that you, as the Seller, will stay in the home, after close, as a Tenant.
A Short Term Post Possession Vs Leasing
Less than 30 days would be considered a Short Term or Post Possession. Essentially, the Seller is staying in the home, up to 29 days after the Close of Escrow and Recordation of the Property. Because of the time frame, the relationship between the buyer and seller would not be that of a Tenant and Landlord relationship.
This means that the Landlord/Tenant Act may not apply.
In most cases, a short term Post Possession is a simple, short agreement between the parties and attached to the Purchase Contract, contingent upon the successful close of escrow.
A Post Possession will cover terms such as a daily rate of “rents”, if any security deposit is to be held, who will maintain the property and features within. It may also include terms such as, when the final walk through will be performed and condition upon move out.
The Post Possession is intended to be a short term solution to a challenge.
When you list your home, there are several contingencies that could kill the deal, such as inspections or appraisal. In an ideal world, both of these would go smoothly, however, that’s rarely the case. If you’re trying to sell your home and the buyer discovers that the roof is 20 years old, the seller could be faced with having a buyer cancel, or being out $25k in a new roof, eating in to their much needed equity.
As a seller, who’s not under contract on a home to purchase, the parties have the option to negotiate on that roof, and if the buyer is not comfortable, the seller can choose to try for another buyer rather than taking an automatic loss of $25k.
Or… The Appraisal comes back low. Assuming it’s a bad appraisal, and you know that you can get more if you went back on the market… The Seller, not being under contract with a purchase now has the flexibility to go back on the market and find a new buyer and try for a better appraisal.
There’s power in flexibility.
The flexibility is not there if you’re trying to close on the same day, and you have to be under contract at the same time.
Your purchase is the priority when buying and selling. That’s where you end up, and it needs to take priority. If you are working out the details on your dream home, you’ve successfully gone through inspections, just to find out that your sale may fall apart…. It can ruin your financial situation or put a wrench in your ability to close on your new home.
The ideal situation is to have time to work out the important details on the sale of your home, so that you can comfortably close on the purchase of your new home.
A Post Possession can buy you a week or two (or three) to get through those hurdles before you begin your dream home negotiations.
A Long Term Post Possession is referred to as a Lease
When you plan on staying longer than a few days, the best practice is always to put together a lease. But in most cases, it’s not required until you hit that 30 day mark.
Think of it like a Hotel vs Month to Month rentals. A Post Possession is used for the daily rental. A Lease is going to offer more protection for both parties if they intend on extending the time beyond the 30 day limits.
A lease is going to cover more of the minor and major details on a stay, and offer a Landlord and Tenant rights protection.
In a Landlord and Tenant Relationship, there are protections for both parties, such as health and safety guidelines to condition of the home, timeframes for returning deposits as well as insurance information, pet details, risk of loss details etc.
In most financed transactions, the lender will have a say in the length of that Lease. If the loan is for a primary residence, the owner may be required to take possession within 90 days of Close of Escrow. If the home is to be a secondary residence, the lender may be a little more lenient, however, it may restrict the ability to wait more than 6 months.
If you’re in a Sellers Market, obtaining a favorable Post Possession/Lease can be a simply, no brainer… but here’s something to keep in mind;
- Your buyer may be contingent on the sale of their own property and not have a back up plan, so it won’t always work out favorably in negotiations.
- The higher offer may not always be the one with the ability or willingness to offer a Post Possession.
- Some Brokerages do NOT allow Post Possessions, so be sure to ask before accepting an offer.
- Make sure that the lease and terms are contingent on the successful Close of Escrow.
- The Devil is in the details, and having a lawyer review the terms is ALWAYS recommended.
- In the event of a lease agreement, make sure that you have reviewed the Landlord and Tenant act to ensure you fully understand your limitations and responsibilities, such as how much deposit is allowed.