An interim occupancy agreement is typically a contingency on an agreement. This requests that a buyer be able to move into a purchased property as a tenant prior to the official close of escrow and transfer of the property title.
In a real estate purchase, the buyer of a home typically will not move into the house until escrow has closed. Oftentimes this presents problems for the buyer because it is common for the buyer to need to sell their existing home to buy a new home. In such a situation, if the seller approves the buyer can move into the home prior to the close of the purchase. This is done via signing an interim occupancy agreement.
It is rare for sellers to permit this because of the possibility that the buyer’s loan will not be approved. Buyers and sellers should consult an attorney before signing an interim occupancy agreement because of the potential disputes that may arise during the process.
In an interim occupancy agreement, the buyer becomes a tenant of the property until the transaction is executed. Typically, in such an agreement the buyer will pay a daily or monthly fee for living in the property. The buyer will cover all expenses during this time period, including water, power and electric fees. The main benefit of this type of arrangement is it gives the buyer additional time to purchase the property without worrying about the home being sold to another party. Additionally, it benefits the buyer because it gives them more time to sell their existing home if necessary.
Problems with Interim Occupancy Agreement
Buyer’s Loan Does Not Go Through: Getting approved for a loan is never guaranteed unless the buyer has great credit and consistent monthly income. Without a loan, very few purchases would take place. Because of these facts, a buyer who wishes to purchase a home and agrees to an interim occupancy agreement might not actually end up purchasing the property because of their inability to get qualified for the loan. A seller should be wary before giving a buyer this option, unless they are very certain that the buyer will have no issues obtaining the loan that is required to purchase their home. Evicting tenants is not an easy task and in many instances the seller would be better off selling the property to someone else, rather than risk the buyer not getting the loan and thereby not able to purchase the property.
Property Damage: Until the transaction closes, the prospective buyer does not own the property meaning that if the transaction does not close and the buyer damages the property, the sellers property value will be reduced. Additionally, there is a possibility for injuries on the property, which although the seller wouldn’t necessarily be liable for, is another circumstance that the seller would have to deal with.
Property Issues: When a buyer has the chance to spend a significant period of time living in the home they plan to purchase, they may develop reservations about purchasing the property. Living at the property gives buyers the ability to see how it feels to live there, and in certain instances the buyer might decide against going through with the transaction. Buyers might discover portions of the property they are not happy with and therefore could ultimately decide against purchasing the property. This might give the buyer leverage to ask the seller for a reduced price for a property.
Increased Cost for Buyer: In the event that the purchase does not go through the buyer would have to spend tome and money moving into the house and moving out once again. This is a major drain of time and expenses.
Although there are many instances where it is advised not to enter into an interim occupancy agreement, there are times when in benefits all parties involved. An example of when it really benefits all parties is when the buyers loan has already been approved and they are only waiting for the loan to record. Once the loan is approved, the transaction is more or less completed unless any unforeseen circumstances may arise.
