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Written agreement necessary if seller stays temporarily
By Edith Lank | Columnist
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Published: 9/18/2010 11:00 PM

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Q. I have been wondering what we should have done differently. We closed on the house we were buying, but we didn't take possession until three weeks later. The sellers needed the money from the sale before they could close on their new home.

When we did move in, there was damage to drywall plus other damage (the seller had five wild teenagers). After some persuasion, the sellers did make the repairs, but it was an awfully stressful situation. This was a For Sale by Owner, although I'm sure this can come up with a Realtor sale, too.

For any period longer than a week after closing, should you usually set up a rental agreement and get rent for that period that the sellers are occupying - just to protect yourself for any damage that might occur until you take possession?

A. I'd like to think that if you'd had an agent or a lawyer, you would have been advised about precautions to take when the sellers remain for even one day after closing.

Any time strangers occupy a house you own, you should have a written agreement. You might have taken pictures to document the condition of the place and required a security deposit to cover potential damages. You should also have checked about insurance coverage.

What would you have done if the closing on their next house was held up and they didn't get out? It can sometimes be complicated to evict people who are not legally your tenants. Nor was it fair that you were paying expenses on the house, property taxes and mortgage interest, while they had your money and were living there for free.

A common arrangement is for seller/tenants to pay enough daily rent to cover your expenses. In addition, a written agreement may provide that if they remain after the expected period, the rent keeps increasing so that they are motivated to make other arrangements and move out.

Similar precautions are needed in the opposite case - when buyers need to move in before closing. That can lead to all sorts of complications. What if, for example, the buyers run into last-minute financial trouble and can't close? Or decide, after they get there, that they don't enjoy living in the house and want out? Real estate brokers are usually dead set against letting buyers move in ahead of time.

We are selling our house to our renters. They have been prequalified. What do we need to do now?

A. You need to negotiate a sale price, sign a sales contract that protects the interests of both parties, and see to all the financial arrangements, documents, legal services, inspections and disclosures that are needed before final transfer of title.

I'd suggest hiring a real estate broker, perhaps by the hour, to guide you and your tenants through the process.

My mom owns a house in Nokomis, Fla. We've watched the value decline from $350,000 to $180,000. The house is currently rented at $1,000 per month. The tenant also pays utilities and their lease expires in October. We would rather sell the house, so mom has the money for her nursing home; however, we fear it won't sell and will lay vacant requiring a greater expenditure of funds for expenses. What should we do? Sell or continue to rent?

A. Forget how much your mother once could have sold for. That has nothing to do with your decision.

You didn't tell me her cost basis for the property and whether she'd have any profit if she sold now for $180,000. Nor do I know how long she's owned the house and how long she's been out of it. All that might make a difference from an income tax point of view. If she'd have a sizable capital gain, better check promptly with a tax professional to see if she has a time limit on using the homesellers tax exclusion.

You don't need to worry about the house standing vacant if you list it at a tempting price. Anything will sell if the price is right.

I'm thinking of selling my home and buying a smaller, less expensive one. I'm also planning on retiring in 10 years. Should I hold on and wait for my house to be worth more? Or should I go ahead and downsize?

A. From a financial point of view, it doesn't matter whether you do it now or later. If you're buying and selling in the same market, what you lose on one end you make up on the other. Choose when to downsize simply on the basis of what you really want to do.

• Edith Lank will respond to questions sent to her at 240 Hemingway Drive, Rochester, N.Y. 14620 (please include a stamped return envelope), or readers may e-mail her at ehlank@aol.com.

2010, Creators Syndicate Inc.