What is a rent back agreement?
Picture this: you’ve finally got a contract on your current home and you’re getting ready to move. But what if the new home you’re buying won’t officially be yours until after you’re supposed to move out? Or worse, what if your home sells before you’ve found another place to call your own? It might be time to consider a rent back agreement to help with your situation.
There are several things that can occur in the real estate market. The new home that you are buying could be through a new home builder, and in our current real estate market, we have seen them have shortages in many different supplies, because of covid. If this was to happen to you and you design things around your new home closing on a certain day and it won't close for months your home buyer might offer a rent back to you.
What is a Rent Back Agreement?
Simply put, rent back agreements give the homeowner a little extra time to move out after closing. Once they are no longer the home’s owners, they “rent back” the home from the new owners for a period of time. This usually includes rent money plus a security deposit in the event that anything becomes damaged during this time.
These agreements are used in a variety of scenarios. For example, if a home seller has a contract on another house that runs into delays, they can ask for a rent back agreement to avoid closing delays on their current home.
These agreements can help a homeowner not having to take on the burden and expense of moving twice.
How Rent Back Agreements Benefit Buyers and Sellers
Rent back agreements can provide big value to buyers and sellers alike.
From the buyer’s perspective, approving a rent back agreement can make your offer appear more favorable in a competitive market. Homeowners that need flexible move-out dates may be more inclined to accept a buyer’s offer if they’re willing to engage in a rent back compared to buyers who are eager to take possession of the home right at closing. Plus, the rent they receive from the rent back can help them recoup some of their home buying expenses, like closing costs.
For sellers, the clear benefit is having more time to pack up your things and move into a new place. Even when you have a plan in place, you might experience delays, or worse, your contract might fall through.
If the seller cannot stay in their home after it closes there are other options in our current real estate market. They could rent some PODs, and then stay in an AIRBNB or in an extended stay hotel. It might be a little more expensive this way, but over the big picture, it is usually not that big of a deal from what prior sellers have told us.
The final thing that can be tried in order to stay put if it is needed is to offer to change the closing date on the house you are selling. If this can be done it can allow you to stay in your property long without having to create a rental agreement for a post possession.
How to Protect Buyer and Seller Rights
The benefits of a rent back agreement are multi-sided, but so are the responsibilities that come with it. This agreement is legally binding and requires both parties to uphold their end.
Both the seller and buyer will need to decide how much the seller will pay in rent, as well as how long they may remain in the home. The buyer may also charge a refundable security deposit to cover any damages that might occur during that time.
Other considerations include:
● How rent payment will be made to the buyer (in escrow or directly)
● Who pays for what utilities
● Who maintains the property
● Insurance for seller’s belongings
● Seller’s obligations at the time of moving out
Buyers must also alert their lender into the arrangements to ensure proper “by the book” documentation.
Final Thoughts on Rent Back Agreements
With a rent back agreement, the closing on the home takes place on schedule, as normal. The only difference is the new owners don’t move in right away and the seller sticks around a while longer.
Will a rent back agreement work in your favor? Talk to one of our skilled agents today to determine if this makes sense for your buying or selling situation. A post possession can be an amazing option if it is available.