Rent Back – What is that?

Why would you want to rent back a house you are trying to sell? Well, there are actually a couple of very good reasons. If you are selling and buying or perhaps even selling and then renting, the rent back or “post-closing occupancy” as it is also called, gives you flexibility. A major dilemma faced by someone who is both selling and buying is that the contract calls for you to be out of the property as of the date of closing. This means out of the property – literally packed and loaded at the time that money is exchanged. This can be a tall order particularly if you have kids, pets or any amount of furniture and the person you are buying from is not letting you in the property early which is the case about 98% of the time. It makes sense to build in a week or two of occupancy after the closing to reduce the stress that is generated by the situation.
The other advantage of the rent back for the person that is both selling and buying is that you can perhaps even negotiate an extended rent back of say, 45 – 60 days, to allow you sufficient time to identify your replacement residence. One of the hardest things about selling and buying is that you are not really free to buy in most cases until you have a buyer for your property. If you sell with the stipulation that you are allowed to rent back for an extended period of time, it gives you the freedom to go out and hunt for a property just like someone who has no contingency of selling. Your negotiating position is significantly stronger and you can buy with confidence that your efforts are not being wasted. You are quite likely to secure your next property at a lower price because you can promise contractually to complete the deal as written.
How does this work? The person who is renting back from the new owner typically pays the amount of the new owner’s mortgage payment, taxes and hazard insurance. It is typically broken to a “per diem” or daily cost. This amount is frequently collected at the time of closing. The renter usually converts their homeowner’s insurance to a renter’s policy for the time period and also pays for the utilities at the property until the agreed upon vacancy date. In some situations, there is a security deposit. If I was the new owner, I would want one in the event a wall I damaged by a mover.
Rent backs can make it all a little more complicated when you are negotiating a deal but that is the time to work it out. If you don’t ask the person buying your home if you can stay over for a week after closing until the deal is nearly consummated, the likely answer is “no”. Most people not only have their own plans in place, but their willingness to budge on a perceived benefit for the other party at that time is less likely. A little more complex, but handled diplomatically up front, this can be a tremendous benefit at virtually no cost to the home seller.

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