Question: We’re preparing to sell our home and are concerned that we won’t have enough time to move out after it sells. Is there a good time to ask the buyers if we can stay a bit longer?
Answer: A Seller’s Post-Settlement Occupancy, more commonly referred to as a rent-back, allows a home owner to sell their home, collect the proceeds, and continue living in the home for a pre-determined period of time after closing.
The most common scenarios for a rent-back are:
You have a need for the sale proceeds quickly; such as applying them towards the purchase of your next home. A word of caution on this strategy – make sure that you’ll be able to find and close on your next home before the rent-back period ends (or already found it).
Moving out is burdensome and/or highly disruptive to your family and/or job that you don’t want to start the process until you’re under contract and all buyer contingencies have expired
You need to remain in your home until the school year is finished
How Rent-Backs Are Structured
The Northern Virginia Association of Realtors contracts (as well as other regional contracts) provide a standard form for a Seller’s Post-Settlement Occupancy Agreement so you don’t need to worry about hiring an attorney. It functions as a short-term lease including 1) how much the seller will pay the buyer for the rent-back, 2) how long the rent-back lasts, 3) a security deposit, and 4) a penalty for staying past the rent-back period.
Buyers will conduct a pre-closing walk-through before they purchase the home where they have all the rights provided to them in a normal sale. At the end of the rent-back, the new owners will conduct another walk-through once the previous owners move out, which is similar to that of a walk-through at the end of a normal rental period. If the previous owners caused damage during the move-out, the new owners can make a claim against the security deposit, generally held by the Title Company who handled the sale.
Not Without Risk
For the new owners, a rent-back carries with it some of the same risks involved in being a landlord. Disputes over security deposit, damage in excess of the security deposit, or trouble with the previous owners moving out on time are all realities that buyers need to consider. As with many decisions in a real estate transaction, your willingness to agree to a rent-back is a matter of risk and reward. The risk of problems like I mentioned is fairly low in most cases and the reward for accommodating a seller’s request for a rent-back can be the difference between them accepting your offer or taking somebody else’s.
The fee for a rent-back is usually calculated off of the new owner’s carrying costs (mortgage + taxes + insurance), but in our hyper-competitive market, I’m seeing aggressive buyers offer seller’s a free rent-back as a way to increase the competitiveness of their offer. A free rent-back isn’t worth much if the seller is asking for an extra week, but it certainly adds up if they’re asking to stay for 6-8 weeks past closing.
On both sides of the transaction, the use and structure of a rent-back is one of many important strategic decisions you may face in this market. It’s a good example of an area where an agent who understands the local market and how to maximize your risk/reward position can add real value. Whether you’re reaching out to me or not, I want to stress the importance of making sure you have the confidence in your agent to truly protect and maximize your interests through the entire transaction lifecycle.