Avoiding the Pitfalls

pitfalls

When buyer makes an offer on a house it’s a fairly common thing for a seller to want to rent back for 30 days or so after close of escrow. That’s an especially useful thing when the seller hasn’t identified their next home. Typically, the seller rent’s back at the buyer’s principle, interest, taxes and insurance (PITI), which naturally tends to be higher, sometimes ALOT higher than they’re used to. Often, that’s a reasonable tradeoff since a 30 day escrow is entirely too short if you need to buy another house first and the extra time removes loads of stress. The PITI payment can easily be rationalized.

There is a caveat in all this though. When a seller rents back they need to agree to do so in writing on a standard form used commonly throughout the industry, a “seller occupancy after sale addendum”. It’s basic boilerplate, for the most part, and talks about how long the period of occupancy is, how much is paid, who maintains the property…etc,etc. It also has a clause for a security deposit. Here’s the actual verbage that’s written on this form:

Upon COE, Seller shall deposit funds with Buyer equal to twice the monthly occupancy charge, or alternatively the otherwise agreed total sum of $____(Security Deposit).

Hmmm. It doesn’t say funds are held in escrow…it says the buyer gets the deposit. It also says twice the PITI. It wouldn’t be at all uncommon for this sum to reach $10,000 or more under these guidelines. Honestly, this is something that can be easily missed in the midst of all the boilerplate that is signed while ratifying a contract.

If you’re a buyer think about this for a minute. The seller, usually, has loved the home they’re selling. Most of the time they’ve gone to a great deal of time preparing their home to sell and making it as appealing as it possibly can be…and then a buyer expects a $10,000 security deposit so they don’t recreate Animal House during the rent back? Like the sellers are going to start tapping kegs and having toga parties for those 30 days? In the 20 years I’ve been in Real Estate, I can’t think of anything that offends a seller more that a demand for a large security deposit. Most of them are offended by the suggestion of any security deposit.

If you’re selling and will be in need of a rent back, make sure you get that clause clear when it comes to a deposit and how much it will be…as well as who holds the deposit. The Title company is happy to do that.

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