Are Post-Occupancy Agreements Risky?

May 22, 2024 by Mark Ferguson

Post-occupancy agreements can be risky! In this post, I will cover the details of post-occupancy agreements and pre-occupancy agreements. I’ll also dive into a particularly challenging real estate experience I personally had. While this ordeal brought significant attention to my YouTube channel, it highlighted the many pitfalls associated with these agreements.

I’ll also touch on pre-occupancy agreements and the evolving real estate and tenant laws that make these situations increasingly complex.

Video: Post-Occupancy Risk – Horror Stories

My Personal Post-Occupancy Agreement Nightmare

A year ago, I purchased a property with a post-occupancy agreement, allowing the seller to remain in the house for 15 days after closing. If they stayed beyond that period, they owed $250 per day, with $5,000 held back from their proceeds to cover potential overstay penalties. Despite these precautions, the experience turned out to be a nightmare.

The seller repeatedly promised to move out “tomorrow,” stretching their stay and complicating the situation further. Although I eventually gained possession, it took nearly the entire $5,000 reserve to cover the extra days they stayed. The title company held the disputed amount for a year before it was finally released to me, marking the end of a stressful and drawn-out process.

Why Post-Occupancy Agreements Are Risky

For regular home buyers and sellers, post-occupancy agreements can be disastrous. If a seller refuses to leave, the buyer must follow state eviction guidelines, which can take months or even years in some states. This delay can cause significant financial strain, especially if the buyer needs to move in immediately or faces double housing costs.

It’s essential to understand that no matter how nice or trustworthy a seller seems, the risks remain. Some people are adept at exploiting these situations, knowing how to manipulate the system to their advantage. Always negotiate to hold back a substantial amount of money—at least $10,000 or more, depending on the property’s value—to incentivize the seller to vacate promptly.

How Evictions Work and How to Avoid Them as a Landlord

Pre-Occupancy Agreements: Equally Troublesome

Pre-occupancy agreements, where buyers move in before the sale is finalized, can be just as problematic. If the sale falls through, buyers who have already moved in might refuse to leave, leading to similar eviction challenges. Even allowing buyers to store items in the garage can grant them possession rights, complicating the eviction process.

As a real estate agent and broker with over 20 years of experience, I always advise clients to avoid both pre- and post-occupancy agreements whenever possible. The convenience they offer is rarely worth the potential legal and financial headaches.

Real-Life Consequences

In my case, the post-occupancy agreement allowed me to use the situation to my advantage on social media, but the average home buyer or seller doesn’t have that luxury. Evictions are time-consuming and costly, involving legal fees, potential property damage, and lost rental income. The emotional toll and financial burden can be overwhelming.

Practical Advice for Home Buyers and Sellers

If you must enter into a post-occupancy agreement, ensure it is written in your favor:

• Hold back a substantial amount of money to incentivize the seller to vacate.
• Set a strict per-day penalty that accumulates significantly if the seller overstays.
• Consult with a lawyer to understand your rights and obligations fully.

For pre-occupancy agreements, avoid them if possible. If absolutely necessary, ensure clear terms are set, including a substantial security deposit and written agreements outlining the consequences of a deal falling through.

My Master the Deal course covers the many other ways you can find a great deal.

Conclusion

While I continue to deal with post-occupancy agreements as an experienced investor, I approach them with caution and a clear strategy to mitigate risks. For most home buyers and sellers, the best advice is to avoid these agreements to prevent potential nightmares.

Look for the best way to invest in real estate? Check my full real estate investing guide.

If you have any questions or want to share your experiences, feel free to leave a comment below.