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Seller wants to stay in house for 3 months after closing, rent free...

I thought I had heard it all, but it seems I have not: we are trying to show a house to a buyer, and in the comments the MLS listing indicates that unless the buyer agrees to allow the seller to live in the house for 3 months after closing, they wont be allowed to see the house. Now you all may correct me if I am wrong, but this means that the buyer would have to go with investment property lending, as they would not be able to call the house "owner Occupied" when applying for the loan. Most likely the lender would not grant the buyer this concession. Also, because of this, the buyer would forgo the $8K tax credit, if they are first time buyers. After all, it would not be an owner occupied house.

Note that this house is listed at market value, without a discount for the rent!

Of course, we have seen deals go through that allowed the seller to stay, at a low rent, until such time as they found a place to move to, say, a month after closing. But again, all of the above applies, and at least in those cases the seller was willing to pay rent.

This seller wants to live rent free for three months AFTER Closing... not 3 months from today, but so much after the closing, rent free.

Other than a very generous investor, who is paying cash for the house, the house becomes essentially unsellable with these conditions.

Question: Have you seen such conditions on a sale? Should this house be permitted into MLS, since the conditions are prohibitive? What would you say to such a condition? Would you list such a house? Would you advise a buyer to take the deal?

Paul Silver, Owner

Focus Professionals, Inc.

Rhode Island Real Estate Services

Posted by Rhode Island Real Estate, Buyers Agents, Paul Silver on 09/16/2009 02:49 PM

Comments (13)

Seller Staying After Closing in the Home Buying Channel

seller demands, owner occupied house, buyer agency

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13 Comments on Seller wants to stay in house for 3 months after closing, rent free...

SEP

The agent who's listing that house must really be desperate! Unless there were something extremely special about the house, I would consider it unsellable. Why would an agent list a house he won't be able to sell, and damage his reputation in the process?

Nothing in the 2 MLS I subscribe to would determine that as 'prohibitive'. I've seen 90s WITH market rent before but mostly it is 7 to 30 days.

We do "lease backs" all the time but not anywhere near that amount of time. Not something that I would entertain but without knowing what is really going on, really hard to say. Lots of questions here. Like would the seller still need the 3 months if it did not sell for 6 months?

I am familiar with lease backs as well Edward, but as you say, never for that amount of time, Also, the condition is to have the seller live in the house "for 3 months after closing" and so far the house has been on the market for about a month now...

John, you say "with market rent" and that is fair... but have you seen one like this, where the seller refuses any rent to be paid, and insists on 3 months POST CLOSING, whenever that closing takes place?

In Texas we have "Sellers Temporary Lease" form which allows the seller to stay on in the property for a maximum of 90 days. BUT it has places for a deposit and a amount to be paid by the seller to the buyer AT THE TIME OF CLOSING! I have never heard though of someone wanting to live rent free like that for that long of a time.

If I had a buyer, even an investor, I'd reccomend not bothering to see the house.

Hi Paul, I had a seller of a condo who wanted 2 weeks free for 3 years after the sale ! I turned it down .

SEP

If I appraised this property I would be required to determine the implied rent's impact on the sales price and the appraised value, as this is effectively a concession.

Jesse: the seller is staying, and wants to be rent free... for a residential property, why would a concession impact the valuation? Although this would be a buyer concession, if anything...

Off topic, but to me, a residential property should be appraised based on the comparison to similar properties having sold recently... all this gibberish about considering concessions, "implied rent" and the like to me fogs the valuation... it is always interesting to me when I find appraisers wanting to see a P&S, etc. since the deal on the property and etc. really should have no impact on the market appraisal, in my view.

But as I said, that is off topic... if the buyer is allowing the seller to remain rent free, then the "implied rent" should acrue to the buyers benefit, not the sellers, and should reduce the price accordingly, independent of any appraisal...

We have gotten far from what an appraisal is supposed to mean, I think...

SEP

Paul:

I agree that a residential property should be appraised based on comparison to similar/comparable properties. You are correct that the concession or "implied rent" fogs the valuation - but it is a factor not present in the comparable sales utilized, and therefore must be adjusted for.

I don't see this as a benefit to the buyer, but rather a benefit to the seller - the seller has use of a property rent free, and the buyer does not have access to an asset he owns without fair compensation (sorry if I implied otherwise). The adjustments utilized should reflect this fact.

OCT

Yes. I've seen it and ignored it. I ask the listing agent if they understand what "owner occupancy" means.

Sometimes sellers just throw stuff out there. I ignore everything out of line and just go forward. This is an ignorant listing agent and a seller that wants to sell and believes that buyers are going to roll over to all outrageous conditions.

Just ignore that and contact for an appointment. If the listing agent won't give access without the buyer giving up financing, contact the broker. There's got to be someone with a brain in that transaction.

Sometimes I think we work in LaLaLand.

Hey Lenn: this agent told my agent that unless the buyer signed a zero rent lease approval BEFORE seeing the house, they would not be allowed to see it... nice huh? Anyway, the house has now been pulled off the market... we shall see... nice new photo by the way...

Thanks.

NOV

I would say that this seller was not very motivated. He probably let the listing agent give it a try to see if someone could be found who "had just fallen off the turnip truck". The listing agent might have agreed to this because he/she just wanted a sign on that street. Who knows?

There is probably more to this story than we have heard here.

"This is a great time to buy a house."

Akron, Ohio

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