Seller's Temporary Residential Leases

From The Seller's Standpoint

Even though it is not a required document to the sale of a home, we believe the Seller's Temporary Residential Lease (when the  Seller continues to live in the home after closing) is as fundamental to a solid contract as anything we are going to negotiate!  We will always insist on including this document (buyer agent's take note), and we won't give on it unless our Seller instructs us to concede the point. 

I am amazed at the number of Sellers we work with who have never heard of a Seller's Temporary Residential Leaseback even after having sold many homes through the years.  When I explain how it works and how it will protect them, they invariably say something like this ... "That's a great idea.  We have never done that before.  We just always made sure we we were out of our home on the day it closed and everything worked out".  Those are some lucky people because it doesn't always work that way.

The Seller's Temporary Residential Leaseback is not a required document to sell a home.  I have to assume the listing agents who don't use it when their Seller is occupying the home either ...

• don't know it exists

• don't understand its impact to their Sellers or

• just don't want to bring it into the mix because it is just one more document to negotiate. 

The leaseback addendum is a short, two page document.  The key word here is "temporary" because it is not meant to replace a full blown lease document (which is much more detailed and lengthy).  Any Seller's leaseback which extends 90 days after closing requires the full version lease contract.

The Seller's Temporary Residential Lease allows the Seller to remain in the home as the tenant for a negotiated period of time after the home closes.  It is sometimes difficult for Seller's to understand this concept.  They don't want to be tenants.  They just want to sell their home and move on.  I have spent many hours over the years trying to explain that the document is there to protect them, not hurt them, but even so, sometimes it is a tough sale.  In a nutshell, the Seller is not being asked to begin moving out of their home until they are assured the home has closed.  We even take it a bit further and make sure our Sellers do not have to be out of their home until the money is in their account.

To illustrate how a Seller can be hurt without the Sellers Temporary Residential Lease, let me give you an example of what can (and has) happened to Sellers selling the home they live in without a leaseback in place.  The Buyer and Seller agree to close on the home on a Friday.  The default language in the contract states the Buyer takes possession of the home on "closing".  Let's assume the Seller's agent does not include a Seller's Temporary Residential Lease Addendum with the contract. 

The day before closing, the Buyer receives a call from his employer telling him he has just lost his job.  The Buyer is now in a panic and decides there is no way he can afford to own his new home without a job.  He decides to walk away from the home with the full knowledge there is good chance he is going to lose his earnest money.  Unfortunately, the Seller has already moved out of the home he is selling and into his new lease home (or even worse into a home he has just purchased).  All of a sudden, the Seller has a real problem on his hands.  He has just signed a lease (or a taken on another mortgage) and he still has owns his first home.  Sure, the Seller will probably (and note that I said probably) get the earnest money (another article to follow on earnest money later), but is the earnest money going to cover the cost of the Seller's two moves, plus the cost of breaking a lease (or two mortgage payments), plus the aggravation of  everything he went through?  Admittedly, this does not happen often, but as a Seller, do you want to take the chance it will happen to you?  Without a Seller's Temporary Residential Lease, the Seller and their agent are just rolling the dice and just hoping everything will work out. 

It is also important to know that unless the Seller's Temporary Residential Lease  is drafted correctly, it is still not going to protect the Seller 100%.  Let's say the home closes on Friday but it is too late in the day to wire funds?  The funding will not occur until Monday (or maybe even Tuesday if it is a long weekend).  But the clock on the lease started ticking when the home closed on Friday?  Even with a Seller's Temporary Residential Lease, the Seller is still required to be out of the home within the agreed up number of days after closing.  Does the Seller still start to move out hoping that the funds will come through?  Believe it or not, I have seen deals (not ours) where the homes closed and never funded.  See how this can get messy?  There are ways to protect the Seller in this area and we always make certain we do it!

Just remember that "closing" and "funding" mean two different things.   "Closing" means the necessary paperwork has been completed and "funding" means the proceeds have been delivered to the Seller. 

Not surprisingly, when we represent Sellers who are currently living in the home they are selling, we always include a Seller's Temporary Residential Lease.  Offers rarely come to us from buyers with this addendum because a Seller leaseback is usually of no benefit to them.  But we will always go back to the Buyer with the addendum attached to the contract (buyer agents please take note).  We also repeatedly tell our Sellers never to sign anything which binds them to another property unless it is strictly contingent on their home closing.  While most heed our advice, sometimes they don't.  Here is a good example of what can go wrong when a Seller jumps the gun.

You might save yourself a lot of pain and suffering if you just remember, anything can happen on a transaction.  As a Seller, a deal is never a deal until the money is in your checking account! 

From The Buyer's Standpoint

To be honest, most of the time, buyers just don't like the Seller's Temporary Residential Leaseback.  It provides no benefit to them.  They are understandably excited about their new home and are ready to move in when it closes.  They don't want to be landlords even on a short, three day leaseback. 

But sometimes a Seller's leaseback can also work to the buyer's benefit.  For instance, the Buyer may have children in another school district where their home is located.  They don't want to pull their children out in the middle of the school year, so they might even agree to a long leaseback with the Seller.

The Buyers might also have a home to sell.  By allowing the Seller to remain in their home, they have lessened their financial burden while they are selling their existing home.
 

Now that you understand what a Seller's Temporary Residential Lease is all about, you might want to hear how we try to diffuse objections that often come up.  If so, please click here.

Tom Grisak Estate Homes Realtors, Inc - Texas License # 0329533

Your Realtors for Allentexas, Fairviewtexas, Lucastexas, McKinneytexas, Murphytexas, Parkertexas, Prospertexas