Pros and Cons of Rent Back

Real Estate

This market has brought several challenges. Sellers who cannot and/or will not move until they know the money is in the bank and title has transferred. Many sellers request to retain possession and/or re-rent after escrow closes. Typically up to 30 days. I have seen some that need up to 90 days.

Pro- For the seller it definitely assures them money in the bank and the funds to be able to move.

Provides breathing room to pack up and locate another home.

Provides more time to clean house per se…ie sell items you don’t need and/or give to charity or throw away.

Buyer: In a seller’s market, this could be a deciding factor in a multi-bid situation.

The buyer can give notice with confidence at the current location knowing that they will have a permanent home on this or that date instead of giving notice when the deal has not been finalized.

Things to consider for both parties… You have now gone from Seller/Buyer to Tenant/Owner… The consideration must be accounted for in the rental escrow. We typically determine rents on the leaseback by taking the buyers PITI (Principal, Interest, Taxes and Insurance) on their new loan divided by 30 days and having the escrow company withhold the amounts agreed to in the lease. buy. Everything is negotiable. Must be determined in writing prior to escrow closing. The buyer must ensure that the insurance is current. The seller should check with their own insurance what is covered in this type of transition. The seller is responsible for maintaining the property while it is in his possession. The buyer is now responsible for the maintenance of the house for any repairs that may be necessary. I would suggest getting a home warranty to cover any unexpected issues that may arise. Murphy’s Law always comes after sales in one shape or form. Some frown on back leases, but if done correctly, they will go a long way for both parties.

Can complications occur? Unfortunately, yes…sometimes sellers haven’t made the proper arrangements and feel they can take advantage of staying longer than agreed in the contract, leaving the house in total chaos, not reporting broken items, etc. Buyers are getting impatient and want possession sooner.

Escrow instructions should be mutually agreed upon, to keep a little more as a deposit for peace of mind on the buyers side.

The insurance company of both parties should be contacted to ensure there are no misunderstandings in the event of a fire or other natural hazard that may result in claims.

Have a written contract or instructions as to the details of the subsequent lease. Remember that failure by either party could result in litigation.

Most subsequent leases work without problems. Just KNOW your rights wherever you are and ALWAYS have a written lease or instructions to re-let.

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