It is a seller’s market in most of the United States right now, particularly in used-to-be small towns. As remote work options expand, so do American cities that have walked the fine line between urban and rural. Although this may seem like the perfect time to sell, some homeowners are finding themselves in a tough position. They want to capitalize on the current market but aren’t ready to move out of their house just yet.
The Need for a Rent-Back Agreement
There are several reasons why you may need to sell your house quickly, even if you aren’t quite ready to physically move. These reasons include but are not limited to:
• You need the sale proceeds quickly to apply them towards the purchase of your next home, avoid a foreclosure, or officially settle a divorce.
• You have children in the middle of a school year and would prefer to allow them to finish out the year in the same school district.
• You hope to avoid moving twice ― first to a hotel and then to your new home.
In any of these scenarios, requesting a rent-back agreement might be a solution to your problems. Although these agreements aren’t widely known or utilized, they can be a great resource for homeowners who would like to sell but can’t move out yet. A rent-back agreement is an arrangement between the seller and buyer of a home in which the buyer of a sold and closed home leases the space back to the seller for a predetermined amount of time. This amount of time always immediately follows the closing date.
What a Rent-Back Agreement Entails
A rent-back agreement typically requires additional paperwork as part of the contract to ensure that both parties agree to the terms. The required paperwork differs between states, depending on the real estate rules of that region. Some states require an addendum to be written up, while others already have a standard form included in the original contract. Typically, the agreement specifies rental amount, security deposit, and various deadlines. Essentially, rent-back agreements function as a short-term lease, with the new homeowner acting as the landlord.
The Downsides and Benefits
One downside to rent-back agreements is that, depending on the market, it can be difficult to find buyers willing or able to participate in one. The stars need to align; you must need extra time in the home, and your buyer must have available time. Although it can be tricky to work out, if you’re in a position to make the most out of the hot housing market in your area, a rent-back agreement can be a helpful tool.
Rent-back agreements can also benefit buyers. If your existing house isn’t closing prior to your new close date, offering a rent-back agreement is a good option to explore. Rather than extending your new closing date, a rent-back agreement allows the home to officially close and be transferred into your name. Your ducks are in a row while you sell your existing home, all while offsetting potential costs with the rent amount outlined in the rent-back agreement.
Plus, if you’re buying a home in a hot market, offering a rent-back agreement to the seller may boost your offer to the top if it suits the seller’s needs. If you’re able to be flexible in your close date, this could be a great option for you to rise above in an extremely competitive environment.
Things to Consider
However, as with all leases, there are several things to consider when choosing to enter into a rent-back agreement as a buyer. There are a lot of moving parts that come with owning a rental, even if it’s only for a short period of time. The following are some important things to consider before deciding to move forward.
• Will the rental amount be for market rent, or will it simply cover your costs? What security deposit would you need to have?
• Do you have the capital to cover ongoing maintenance? For example, if the sprinklers break a week after the sale closes, you will be responsible for fixing them, just like if you were already living in the home.
• Will you communicate directly with the seller through the end of the rent-back agreement, or will you use a property management company?
The answers to these questions depend entirely on what the buyer and seller agree to, and both sides have some control over the terms of the agreement. Although rent-back agreements are not for everyone, they can be a valuable resource for those seeking to capitalize on the hot real estate market but need a little more time to plan their next steps.
