What is a Seller Rent Back?
Someone that is not well-versed or familiar with real estate may have never heard the term seller rent back. So, what is it? When purchasing a home, both buyer and seller agree to a closing date, this is the date that the seller needs to vacate the property and the buyer can take occupancy. However, some situations arise that could lead to a rent-back agreement so that the seller can remain on the property after closing.
Essentially, the seller's rent back allows the seller to temporarily lease the home from the buyer. A rent-back agreement is usually utilized as a bidding tool for the buyer's offer to stand out above all others. Let's dig a little deeper to fully understand a seller's rent-back agreement.
Rent Back Agreement Explained
A rent-back agreement allows a seller to remain in the home after closing, essentially temporarily leasing the home from the new owners. The rent back is typically only a one to six months lease, allowing the seller an extended amount of time to wrap up loose ends or even find a new place to live.
A competitive sellers' market is usually when buyers will include a rent-back agreement in their offer. When multiple offers are being received, a buyer wants to stand out above all the rest. The rent-back agreement is an excellent tool for a competitive offer, giving the seller a little more time to vacate the property.
Sellers that don't have their next home lined up already may be concerned with finding one and moving in within a short closing period. A rent-back agreement allows the seller more time to find their next home without having to find temporary housing and place their belongings in storage.
How Long Can the Property be Rented Back?
It is up to the buyer how long they are willing to rent back the property. Depending on the length of time the property is rented-back will ultimately determine how you should proceed. The buyer must protect themselves when allowing the former owner to remain in the home.
If a seller is requesting to stay on the property less than 30 days, a buyer can request that the sign a Seller in Possession (SIP) form. Typically, a seller requesting less than 30 days to remain in the home is due to the timeframe they have to close on another home. The SIP can be added to the purchase agreement and covers many of the typical aspects of a lease. A SIP will usually include the rental rate, if there is a security deposit, which party covers the utilities, etc.
A buyer would want to consider a traditional formal rental agreement when renting the property longer than 30 days. The formal rental agreement will cover the rental term, the monthly rental rate, and any other aspects that would be included in a standard rental agreement.
When agreeing to a rent-back agreement, the buyer needs to be prepared to become a landlord for the duration of the agreement. The buyer now has to take responsibility for collecting rent and for fixing any repairs or issues that may arise during the rental period.
When to Include a Rent Back Agreement
A rent-back agreement will not be attractive to every seller and will be completely overlooked. Before including a rent-back agreement find out what might motivate the seller to accept your offer over competing offers. There are a few ways to research this information. Attend an open house and take the opportunity to discuss with the listing agent what the seller's circumstances are or have your agent call the listing agent to learn the seller's circumstances and what might motivate them to accept your offer.
Including a rent-back agreement may be invaluable to a seller whereas others do not have a need for it, this is why speaking with the listing agent is an important step before including it in your offer. Examples of when a rent-back agreement could benefit the seller are:
- Sellers with children in school that don't want them to have to change schools mid-year.
- The home is listed in a competitive market and needs to find a new home for themselves.
- Listing a home as part of an estate and the family needs time to sort through the deceased family members' belongings.
- The sellers wanted to sell their home before relocating to a new area or even state.
- The home is used as a seasonal home, not a full-time home and the seller would like to occupy the home through the season.
Working with an experienced agent that can guide you through the home buying process and can help you get your offer noticed is imperative in a competitive market. Rent-back agreements are an excellent negotiating tool but, make sure you are in the position to offer it.
The knowledgeable agents at Ashford Realty Group can take you through each step to ensure that your home buying process is in your best interest. Contact their office anytime to get started.
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