Rent-Back Agreements and How They Work

One qualm that often holds homeowners back from selling their current property and moving into their dream home is that they will sell their home before securing a new one. Considering Southern California’s hot real estate market and how quickly homes are being sold, we recognize that this is a valid concern.  Buying a home is a huge decision.. and not one that anyone wants to make under the pressure of becoming homeless!

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However, several options exist to help ensure a smooth transition period  for both buyers and sellers. One alternative that we have found to be mutually beneficial for both parties is the rent-back agreement – this essentially allows the sellers extended time in the home by making them the new owner’s tenants after escrow closes. While this agreement comes with a time limit designated by the buyer, it gives the seller extra time to get things squared away with their new home. It also eliminates the need to deal with storing their belongings or finding an interim place to live! For the seller, this is a more secure option then simply extending escrow as it removes the risk that the escrow will not close and it also gives him/her access to the money from the sale.

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The rent-back agreement is advantageous to the buyer for two main reasons:

  1. If there are several competitive offers on the home, it may make the buyer’s offer stand out and help ensure it’s acceptance.
  2. The rent charged to the seller may help to recover closing costs – or at least lower the overall cost of the move.

Note: While it is technically up to the buyer to determine how much the cost of rent should be, it is typically the equivalent of the buyers’ principal, interest, taxes and insurance on a prorated basis. Thus, the seller will essentially be paying the buyer’s mortgage for the amount of time they will be occupying the home.

It is important to note that rent-back agreements are legally binding agreements made in writing so it is essential to maintain clear communication concerning your needs (whether you are the buyer or the seller!). Be sure to agree on the exact date that the seller is expected to move out, as well as the amount of rent the seller will pay.

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Overall, the rent-back agreement offers the seller some breathing room and peace of mind when it comes to finding a replacement home, but also proves beneficial for the seller. As long as the kinks are worked out and both parties are willing to participate, this option is an ideal solution for those who are looking to relocate into their dream home!

 

 

 

 

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