What happens if you sell your home too fast and can’t move into the next home yet? Or what happens if you haven’t found a house yet but your home already sold? It’s common right now in a lot of markets. Homeowners are selling fast without a back-up plan of what to do next. There are a lot of options actually and one includes the option to rent-back for a time.
What is a seller rent back agreement?
Simultaneous transactions, meaning homeowners sell their home and buy another one with the funds all transferring around the same time can be extremely stressful to all parties involved. It also requires a little bit of luck. If any little hiccup occurs during the transaction process it could delay one or both transactions. Agents have to get the timing just right and with escrow, title, lenders, and buyers and sellers on both sides of the transactions, just about anything could go wrong. This is where a rent back agreement is a good idea.
A rent back agreement gives the sellers extra time to live in the home after closing. This lets the sellers become the new buyer’s temporary tenants. There are typically time limits anywhere from 30 days to 90 days, but it also gives the sellers a chance to close on their new home without the stress of simultaneous closings.
For the buyer, this can actually be a benefit as well. If it’s an extremely competitive market, a flexible offer that allows wiggle room on moveout dates might have an edge over other buyers. The rent that the seller pays to the buyer could actually help recoup closing costs for the buyer as well. If done right, it can be a benefit for all involved.
What to know about a rent back agreement.
A rent back agreement is a legally binding contract made between the buyer and the seller. Both parties decide how long the seller will need to stay in the home after closing and how much rent the seller will pay to be there. Sometimes, especially in competitive seller’s markets, the seller may be able to stay for free. If not, the seller should pay comparable rent for the area. The buyer may also charge a refundable deposit like a landlord. You never know when damages could occur, and the new buyer may want to cover any issues should they occur.
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A rent back agreement means that the seller has more time to find their next home. This doesn’t mean that a seller should take the time, however. They should be diligent on finding a new home and closing within the timeframe in the contract. Sellers will need to make a strong offer and set up appropriate timelines so that they are out of the home by the time the buyer needs to move in.
If buyers are not in a rush to move-in, offering a rent back agreement can help the seller get into the right home. This contract must be agreed upon between the buyer and the seller and all parties involved. The seller is no longer the homeowner. The buyer is the homeowner and the seller is technically the tenant. They may also face eviction if they do not move out within the timeframe stated in the contract. This could get muddy if buyer and seller do not stick to the contract religiously.
Rent back agreements are great for those building a new home as timelines for building can get a little muddy. If the seller needs a couple of more weeks, rent back agreement may be necessary. However, this is something that should be discussed and agreed upon in writing during the offer period, not halfway in between. Buyers need to know what they’re getting into, not roped into the offer and then halfway in the transaction be informed that they need a rent back agreement. Buyer should be well informed of the seller’s intentions at listing.
For more information on rent back agreements, contact your local real estate agent.