How A Rent-Back Works In A Residential Real Estate Transaction
And why savvy home buyers would be receptive to them...
In the typical residential real estate transaction, the buyer takes possession of the property at closing. A rent-back is a provision made by the prospective buyer to allow the seller to remain in possession of the home for a longer period of time.
Why sellers like rent-backs
Some home sellers find themselves making the dreaded double-move. First, from the sold property into interim or rental house. Then, from the interim or rental house into a newly purchased home. Moving twice in a short time span can be painful, and not just in a financial sense. Most sellers in this scenario would welcome the opportunity to avoid any additional hassle, especially after having gone through the sometimes-draining process of putting their home on the market.
Why savvy buyers like rent-backs
Because they are somewhat atypical, making a rent-back offer to the seller can give the buyer some much-needed negotiating leverage. If moving into the home right away is not critical for the buyer, a rent-back offer may convince the seller to make concessions in return (by lowering the price or altering contingencies in the contract, for example).
Rent-backs versus delayed closes
An alternative to offering a rent-back for sellers who are not ready to move into their new home is to delay the closing until the seller can move. However, it may be to the benefit of both parties to close sooner rather than later. Beside the peace of mind that a closed transaction gives both buyer and seller, closing gives the seller financial flexibility that may be crucial to them.
Buyers in competitive markets can use rent-back offers as a way to set themselves apart from the crowds of other serious buyers, and without getting into a bidding war.
The amount of rent the seller pays the new owner in these arrangements is negotiable. In most cases (and if the buyer is not competing with other offers), the offer asks for the seller to cover ownership costs (mortgage payment, property taxes and homeowners insurance). It’s important to remember that the monthly ownership costs for the new buyer will likely be higher than they were for the previous owner, especially if they had owned the home for some time.
If it works to the buyer’s overall advantage, it’s not unusual for the seller to pay the new owner less than the monthly ownership costs. In rare cases (usually in highly competitive markets), buyers may offer a no-cost rent-back to the seller for short periods.
Regardless of the financial arrangement, the length of occupancy should be explicitly denoted in the closing contract. Some areas have specific occupancy arrangement contracts that should be filled out for this purpose as well.
Click Here To Search The ENTIRE Chicago Metropolitan MLS - Updated Hourly- Large Photos - Easy-To-Read Maps
Because they are somewhat atypical, making a rent-back offer to the seller can give the buyer some much-needed negotiating leverage. If moving into the home right away is not critical for the buyer, a rent-back offer may convince the seller to make concessions in return (by lowering the price or altering contingencies in the contract, for example).
Rent-backs versus delayed closes
An alternative to offering a rent-back for sellers who are not ready to move into their new home is to delay the closing until the seller can move. However, it may be to the benefit of both parties to close sooner rather than later. Beside the peace of mind that a closed transaction gives both buyer and seller, closing gives the seller financial flexibility that may be crucial to them.
Buyers in competitive markets can use rent-back offers as a way to set themselves apart from the crowds of other serious buyers, and without getting into a bidding war.
The amount of rent the seller pays the new owner in these arrangements is negotiable. In most cases (and if the buyer is not competing with other offers), the offer asks for the seller to cover ownership costs (mortgage payment, property taxes and homeowners insurance). It’s important to remember that the monthly ownership costs for the new buyer will likely be higher than they were for the previous owner, especially if they had owned the home for some time.
If it works to the buyer’s overall advantage, it’s not unusual for the seller to pay the new owner less than the monthly ownership costs. In rare cases (usually in highly competitive markets), buyers may offer a no-cost rent-back to the seller for short periods.
Regardless of the financial arrangement, the length of occupancy should be explicitly denoted in the closing contract. Some areas have specific occupancy arrangement contracts that should be filled out for this purpose as well.
You can follow any responses to this entry through the RSS 2.0 feed. Responses are currently closed, but you can trackback from your own site.
