When a home seller remains in the home after the close of escrow, it’s as a tenant or renter – even for a brief period of a few days. With the shifting role from home owner to new renter, the rules of engagement may not be clear, and expectations may not line up with the addendum for the rent back. So let’s do a set of what happens during the tenancy period after the sale is done.
Seller rent back True or False questions – which of these statements is true or false for the period when the seller is a tenant?
- When escrow closes, the buyers get keys to the home
- The seller must be undisturbed by the buyer until moving out
- The buyer can do repairs, including fumigation, during the rent back
- Prospective tenants may view the property during the rent back
- Contractors may enter the property during the rent back
- The new owners must give 72 hours notice before entry
- To enter the home, new owners must use an official CAR or PRDS “Notice of Entry” form
- The new owners may only enter the property if their Realtor is present or if the listing agent is present
- If the seller overstays the agreed upon rent back time, there’s a penalty fee that will be charged
- If there’s a rent back, buyers may do a walk through both before close of escrow and also at the end of the rent back period.
Some of these are challenging not just for buyers and sellers, but for real estate agents too. The reason for the confusion has to do with the number of forms involved. There are 3 different rent back addenda which may be employed in Silicon Valley: 2 options from the California Association of Realtors (CAR) and 1 from the Peninsula Regional Data Service (PRDS).
- PRDS form RSOAS – Seller Occupancy After Sale Addendum (1 page form)
- CAR form SIP – Seller in Possession Addendum (1 page form, intended for less than 30 days)
- CAR form RLAS – Residential Lease After Sale (5 page form, for more than 30 days rental to seller)
Some Realtors only use either CAR or PRDS forms, but I have found that depending on whom you represent, it may be worthwhile to tell the client about the differences between them as they are not exactly the same for all of these questions.
Now let’s go back to our questions and see what the contract & addenda have to say about each one.
(1) KEYS: TRUE, buyer gets a set at close of escrow. The CAR contract says that at close of escrow, buyer will be given a set of keys (paragraph 9 f). The PRDS contract says the same thing (paragraph 9a).
(2) SELLER TO BE UNDISTURBED: Depends on the form used. The PRDS form seems to protect the seller the most from too many disturbances. Here’s what the PRDS RSOAS form says:
It’s not so subtle, is it? The focus here is on having the seller not be disturbed unless it’s pretty much a crisis. If the seller and buyer had previously agreed on repairs during the rentback, then ok – but no surprises for the sellers!
The CAR form is a very different approach. The CAR SIP (under 30 days, the 1 page form) says this:
” ENTRY: Seller shall make Property available to Buyer for the purpose of entering to make necessary or agreed repairs, or to supply necessary or agreed services, or to show Property to prospective or actual purchasers, tenants, mortgagees, lenders, appraisers or contractors. Buyer and Seller agree that 24 hours notice (oral or written) shall be reasonable and sufficient notice. In an emergency, Buyer may enter Property at any time without prior notice.”
The tone and the substance are very different for CAR vs PRDS. Here, it sounds like a parade of interruptions to “quiet enjoyment” may occur. “Necessary…services” seems broad. Who decides what is necessary?
The longer CAR form, the RLAS (for longer than 30 day rent backs) puts the seller at more risk and gives the buyer more power. Here’s the wording on that:
” ENTRY: A. Tenant shall make Premises available to Landlord or Landlord’s representative for the purpose of entering to make necessary or agreed repairs, decorations, alterations or improvements, or to supply necessary or agreed services, or to show Premises to prospective or actual purchasers, tenants, mortgagees, lenders, appraisers or contractors. B. Landlord and Tenant agree 24-hour written notice shall be reasonable and sufficient notice. However, if the purpose of the entry is to: (i) show the Premises to actual or prospective purchasers, the notice may be given orally provided Tenant has been notified in writing within 120 days preceding the oral notice that the Premises is for sale and oral notice may be given to show the Premises; or (ii) conduct an inspection of the Premises prior to the Tenant moving out, 48-hour written notice is required unless the Tenant waives the right to such notice;or (iii) enter in case of an emergency,Landlord or representative may enter Premises at any time without prior notice”
With the RLAS agreement, sellers may be able to expect that the home can be remodeled, redocrated, or generally improved during their tenancy.
If you are a home buyer, which form would you want? And if you were a home seller who’d be renting back, which one would you prefer?
(3) REPAIRS DURING RENTBACK: TRUE (depending) The buyer / new owner may make repairs per all 3 addenda if it’s urgent and necessary. With the PRDS addenda, though, it’s more restrictive and any repairs must be due to the need to prevent significant and immediate damage to the property. The SIP says only necessary repairs and the RLAS says work can be also for “decoration”.
(4) PROSPECTIVE TENANTS MAY BE SHOWN THE PROPERTY: True for CAR but False for PRDS. See # 2 above.
(5) CONTRACTORS MAY ENTER: False for PRDS, unless it’s pretty much an emergency, and True for CAR (both forms). See # 2 above.
(6) NEW OWNERS GET 72 HOURS NOTICE: FALSE. All three forms state 24 hours notice. For CAR, it’s 48 hours for the walk through.
(7) FORM NEEDED FOR ENTRY: FALSE. Although the California Association of Realtors has a “Notice of Entry” form, none of these 3 addenda require that it be used. The notice may be in writing in most cases but oral in some. But the use of the form is optional.
(8) REALTORS MUST BE PRESENT DURING RENTBACK ENTRY. FALSE. This is not a condition for any of the forms. The relationship is now owner – tenant. That said, there may be good reasons for the buyer’s agent or even the listing agent to be there. But it is not a legal requirement.
(9) SELLER PENALTY FOR OVERSTAYING: depends on the form. The PRDS form has a small paragraph laying out the penalty for staying past the exit due date. The boiler plate is $500 per day or a blank to fill in the amount. For reasons I do not understand, the CAR forms are silent on this potential problem.
(10) TWO WALK THROUGHS WITH RENT BACK. TRUE. Both the PRDS and CAR purchase contracts call for a final verification of condition, or final walk through, prior to close of escrow. And for the sellers / tenants to get their deposit back, there must also be a walk through at the end of the rent back.
With so much at stake, and so many differences, you can see why some Realtors may prefer to say that they only want to work with one set of forms (PRDS or CAR here in the South Bay). But as a home buyer or seller, don’t you want to know which set works best for you?
We are allowed to “mix and match”, however, that practice is discouraged by many. Why? Because switching forms may just raise a red flag that there’s something to worry about for the other side. But let’s say you’re a buyer and you are worried about the seller / tenant over staying. The CAR does not appear to have built in protections, but the PRDS does. If it’s longer than a 30 day rent back, CAR nudges you into the massive 5 page RLAS form, too, while the PRDS or CAR SIP are 1 page (and feel a lot less scary, frankly).
By the way – I don’t have every phrase memorized, and I cannot cite that thus and such is in paragraph X. I have to look it up. But the main thing is that I know that there are nuances that matter. I know that PRDS has a holdover clause and that CAR does not. I know that generally, PRDS protects the seller from intrusion better than CAR does. But with three forms, I do need to look it up too. I thought that the TRUE OR FALSE approach might be helpful since what feels intuitive may not at all be what the contract says.