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Home Advice Sell

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Sell


WHAT IS A RENT-BACK AGREEMENT? A GODSEND TO HOME SELLERS NOT READY TO MOVE

By Angela Colley

Aug 29, 2022
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If you’re buying your next home while selling the one you’re currently living
in, you’ll definitely be glad to know what a rent-back agreement is.

As you might imagine, this double transaction can require some really good luck,
timing wise, to get just right. After all, if you sell your home and have to
move out before you’ve closed on your new home or even found temporary housing,
that means you’ll have to either couch surf or pay to stay in hotel limbo.
Either way, you’ll have to endure the hell of moving twice.

Not so with a rent-back agreement, which gives the sellers extra time to live in
the home after closing, essentially letting them become the new buyer’s
temporary tenants and pay rent after the closing date for a period of time. It
doesn’t last for long—there are usually time limits and other terms of the
agreement—but it will give sellers a chance to close on their new home and pack
up for the big move.



For the buyer, offering a rent back after closing agreement can have a couple of
big bonuses. For one, if it’s a competitive market, an offer that’s flexible on
move-out dates might very well have an edge. And the rent that the seller would
pay the buyer could help recoup those hefty closing costs.

Done right, this kind of rental agreement can benefit everyone, but there are
some things to consider before you jump on board and allow a seller rent-back.


WHAT IS A RENT-BACK AGREEMENT AND HOW DOES IT WORK

Like the name implies, short-term rent-back agreements are legally binding
agreements made in writing between homebuyers and home sellers. Both parties
need to decide on a couple of issues, namely the rental period (how long the
seller will need to stay in the house after closing) and rental rates (how much
rent the seller will pay to be there). To figure out what rent would be fair,
check out comparable homes for rent in your area, then do the math.

To play it safe, the buyer may also charge a refundable deposit, just like any
landlord would, after the home sale.

“There’s always the chance that damages could occur while the seller is living
there. That’s why it’s a good idea to have a holdback deposit of anywhere
between $5,000 to $10,000,” says Emily Beaven, a Realtor® with Coldwell Banker
in San Francisco. Here’s how to find a real estate agent in your area.

Once everyone agrees, the buyer will close on the house, at which point the
buyer will officially take possession and pay any upfront costs like a normal
closing. In addition, the seller will pay any security deposits or upfront rent
and remain in the house.

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WHAT RENT-BACK AGREEMENTS MEAN FOR THE SELLER

Getting more time to buy your next dream home can be a lifesaver, but don’t
dawdle—a rent-back period won’t buy you much time.

“Typically, lenders won’t accept anything longer [than] 60 days,” Beaven says.

While you’re still at the property, there’s one more potential downside to deal
with: It isn’t really yours anymore. You technically have a landlord now, which
means if you cause any damages, you may not get your security deposit back.


WHAT RENT-BACK AGREEMENTS MEAN FOR THE BUYER

If you’re not in a rush to move out of your current home, offering a rent-back
lease agreement (or post-settlement occupancy agreement) can help you get your
dream home.

“It really can make your offer stronger,” Beaven says, but don’t take it too
lightly. Since you’re the new owner (and the new landlord), you might run into a
few new problems.

“The buyer, like a landlord, is now responsible for making any repairs should,
say, your water heater break,” Beaven says. Plus you may have to make those
repairs immediately.

Buyers will also have to worry about the sellers actually moving out on time.
It’s rare that they drag their feet, but it can happen. If so, you will have to
go through the usual process landlords do to evict your tenants, which is rarely
pleasant. Still, odds are all will go fine, and your sellers will be grateful
they won’t have to move twice.

—————




WATCH: IS IT SMARTER TO RENT OR BUY?





glossaryhome buyingrent back agreementselling a home

Angela Colley writes about real estate and all things renting and moving for
Realtor.com. Her work has appeared in outlets including TheStreet, MSN, and
Yahoo.

Twitter Follow @angelancolley

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