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Use and Occupancy Agreements: 5 Things to Know

In a perfect world, all real estate transactions would go off without a hitch, and buyers and sellers alike could live happily ever after. But that’s not always the case, and when something goes wrong, a use and occupancy agreement could be the only thing keeping the deal together.
In a perfect world, all real estate transactions would go off without a hitch, and buyers and sellers alike could live happily ever after. But that’s not always the case, and when something goes wrong, a use and occupancy agreement could be the only thing keeping the deal together.

Whether you’re buying or selling a home, a real estate transaction is made of multiple moving parts. Sometimes some of those parts do not come together, especially with buyer financing.

To keep a transaction together when issues arise, the seller may consider offering a use and occupancy agreement that will benefit both parties.

Here’s what you need to know about use and occupancy agreements so you can use them effectively, if you ever need to.

1. What is a Use and Occupancy Agreement?

A use and occupancy agreement is a formal agreement between the home buyer and home seller that allows one party to occupy or use the property for a specific period. It’s not an actual purchase, so the owner retains ownership of the home during the agreement.

Though the agreement shares similar qualities as a lease, the two are not the same. Whoever is occupying the home aren’t considered tenants, which means they won’t be granted tenants’ rights. Rather, the agreement only allows them to use and occupy the property.

2. When Do You Use a Use and Occupancy Agreement?

There are a few use cases where use and occupancy agreements are common. One is when the buyer wants to move into the home before the home closes. Here, the two parties would agree to a use and occupancy agreement that would allow the buyer to live in the home for a certain period (i.e. the time between the move-in date and the date they take ownership).

Another common scenario is when the closing has been delayed. If the buyer has already moved out of their previous home, they may have nowhere to go while waiting for a new closing date.

Sometimes, the seller may want to remain in the home for a short time after closing to give them enough time to move out. This is considered a rent-back case, in which the seller pays the buyer rent while waiting to make their next move.

3. How to Create a Use and Occupancy Agreement

A use and occupancy agreement is a legal document and should be prepared by a real estate agent and real estate attorney. This ensures that both sides are treated fairly and provide oversight of the process.

Buyers and sellers can work with the agent and attorney to put the agreement into writing, establish a daily use rate, and create specific terms, such as how to make or collect the payment. Buyers and sellers will both want to do a walkthrough of the property to document the condition of the home and relieve themselves of liability.

4. Pitfalls to Be Aware Of

Even with the help of a real estate expert, there are a few ways your use and occupancy agreement can fall short of your expectations.

If the deal falls through (e.g. the buyer can’t get financing), sellers may have a mess on their hands. They must “evict” the buyers and hold them accountable for any damage to the home.

Or, there may be disputable damage to the home that wasn’t noticed during the initial walkthrough. Here, it’s hard to determine who is at fault, which may leave one party feeling they were treated unfairly.

The most important thing to remember is that language is everything in the agreement. You need to be as specific as possible when spelling out your terms and expectations, and that can be tricky. It’s difficult to think of every scenario that could turn into a nightmare.

5. Rely on a Real Estate Agent for Guidance

Whether you’re the home seller or home buyer, a use and occupancy agreement should provide something positive to both sides. But in order for sellers and buyers to both come out on top, the agreement must be clear upfront and have plenty of oversight to ensure terms and conditions are being met.

It’s in each party’s best interest to partner with a real estate agent that has experience in drafting and executing use and occupancy agreements, and what buyers and sellers can do if one side doesn’t uphold their end of the contract.

Our Clever Partner Agents are top-rated, experienced real estate agents in their local markets skilled in unique real estate transactions, including use and occupancy agreements. Working with a Partner Agent can not only take the guesswork out of the process but also reveal cost savings upfront. Our Partner Agents work with sellers for a flat-fee commission, which helps homeowners keep more profit in their pocket. And buyers in eligible states can receive a $1,000 Home Buyer Rebate just for working with Clever when buying a home.

Are you ready to sell your home or purchase a home? Connect with Clever for a no-obligation consultation and learn how you can achieve an optimal outcome on your home dreams.

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Reuven Shechter

Reuven Shechter is the Outreach Coordinator at Clever Real Estate, the free online service that connects you with top real estate agents to help save on commission. He spreads the word about Clever, disseminating studies to journalists and developing relationships with media outlets. Reuven is passionate about investing in real estate and creating lasting success for families. His writing has been featured in Max Real Estate Exposure, Leverage Marketing, and more.

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