Why a rent-back agreement might be an option for you

Sometimes, sellers want to sell their homes, but stay put. And sometimes sellers have to stay put! Let’s take a look at an example: say your contractor can’t turn over the keys to your new house just yet, but the closing is already scheduled—in situations like these, shrewd buyers and sellers might consider a rent-back agreement.

Hold on—what is a rent-back agreement?

Great question—and we’re glad you asked! A rent-back agreement allows sellers to stay put and rent back their home (from the new buyer) after the sale has closed. In effect, a seller (or his tenant) becomes a temporary resident.

While this arrangement is time-bound and temporary, it does give sellers more time and flexibility before packing up for the big move.

Why rent-back agreements are appealing for sellers

There are a number of reasons why a seller might enter into a rent-back agreement, including:

• The seller’s new home isn’t quite ready at the time the sale closes.
• Sellers may want to pull equity out of their homes, and simply stay home and comfortable.
• Sellers may love their house, but want to give up the heartache associated with home ownership.

No matter what the reasoning, these are often nice deals for sellers—if they can negotiate them with a flexible, willing buyer.

What to look out for when working out your rent-back agreement

There are a number of unique details that must be worked out between the buyer and the seller in order for these transactions to go smoothly. And because there are so many details, many buyers are unwilling to take the time and energy to work them out.

Here are some tips and tricks to negotiating a smooth rent-back with your buyer:

• Be sure to set clear terms regarding a security deposit and late charges. As with any rental agreement, make sure to address whether there will be a refundable security deposit, in case the property is damaged during the period of the occupancy. Additionally, it is important to consider the terms for late rent fees. Depending on the term of the rent-back, a proper lease may or may not be required by the buyer.
• Determine who is responsible for utilities and who takes care of maintenance. Normally, sellers update the details for utilities to the buyer’s name upon closing date. In a rent-back agreement however, you may opt to specify that these fall under the responsibility of the seller during their extended stay in your new home.
• Clarify whether the new buyer wants to do any immediate repair work. Depending on the condition of the property, and the approach of the home purchaser, the new owner has the right to do additional work to the properties; whether for the benefit of the residents, or the real estate itself, and oftentimes both. Be sure that the timeline and scope of such repairs are well-addressed before finalizing terms.

In a nutshell, rent-backs are mutually beneficial agreements for both parties involved.

Whether a seller wants to cash-in on home equity, or if they find themselves in a jam, they get the benefit of flexibility. On the other hand, if a buyer loves the house, they may be more than willing to allow this extra flexibility. If both parties understand the transaction, a rent-back can create a win-win scenario.

At Imagine Homes Management, we love purchasing homes where the sellers would like to stay put—whether they choose to stay for an extra day, month, or year.

By providing sellers with this added flexibility, we are often able to purchase homes that might otherwise not become available. Typical buyers (off the MLS, for example) might need to move in, directly after closing. Or a more traditional buyer may not have great experience with rent-backs.

As for us? We love them, and do them every week.

Looking to sell your home? Let’s talk.

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