A seller remaining in a property being sold for any amount of time after closing of the sale, whether it's days, weeks, or even just hours, is commonly called a "rent-back". The intent is to give the seller some extra time in their departing residence for logistical purposes.
For example, if you are also in the process of purchasing your next home, you may need the proceeds from your sale to apply toward your purchase, and those funds are not available to you until you close on your sale transaction. Whether you are relying upon those sale proceeds or not, your next home just might not be available to you before you close your sale, in which case you and your belongings may have nowhere to go. This is a common reason seller's seek a rent-back in their sale agreement with a buyer.
There are major risks. The practice of a rent-back has become a bigger concern to buyers since the State of Washington has enacted many more laws that make being a landlord a higher risk. And that is exactly what a buyer who allows a seller to remain in a property for any amount time after closing becomes; a landlord, and the seller a tenant, with all the protections the Washington State Landlord-Tenant Act affords a tenant.
In the back of a buyer's mind they should be wondering, "What if something goes wrong with the seller's moving plans and they remain in the home beyond our agreement because they have nowhere to go?" In that scenario the buyer (now landlord) would have to go through the costly eviction process. It could take months to get the seller out of what is now their home, which they committed to their mortgage lender they would occupy as their primary residence almost immediately.
Insurance is another challenge. Only the owner on title to the property has "insurable interest". Insurance companies will not insure a property in the name of someone else. So, upon closing, the seller no longer has insurable interest. Therefore, the buyer needs to be sure they have insurance in effect for fire and other potential perils. But, the buyer is not residing in the property, so they may need a landlord's policy of insurance for the time they will be renting the property to the seller.
Further, the seller no longer has a homeowner's insurance policy in effect. So, they would need a renter's policy of insurance to cover their personal belongings and that also protects them and the landlord from liability for personal injury or damage while they remain in the property.
Do rent-backs still work? Despite the risks, I can tell you that I have seen rent-backs work out just fine several times in my career, and I have yet to see the worst-case scenario come to pass. So, it is possible, but the risks are real and anyone considering a rent-back should consult an attorney very well-versed in Landlord-Tenant laws.
Be prepared to move in one day. It is also possible that a buyer will not be comfortable assuming the risks. In this case a seller might have to arrange a simultaneous closing for both their sale and purchase, which means they have to have everything moved out of their departing residence by the day of closing, likely without access to their next home until that same day at 5 p.m.
Renting the next home from the seller prior to closing is another, less-common option because, again, the sellers would very clearly be admitting a tenant into their home, which they intend to sell. If the sale of the buyer's property falls through, they may not have the funds to complete the purchase of the home they now reside in, and now that seller must evict.
A rental agreement is a must. In any case, if a party who is not on title to a property is allowed possession of a property, there should be a rental agreement signed by the landlord and tenant. MVP Realty Group brokers can draft these agreements as a part of a purchase and sale agreement.