Renting Back After Your Home is Sold

(February 14, 2013, posted in Selling Your Home)

Sometimes it’s helpful to sell your home before you really want to move. This often happens when you are having a new home built, but aren't sure of the completion date. Is there any way you can sell your home so you’re sure of the funds available for the new purchase, but continue to live in your old home until construction of the new one is complete? Yes, there is with the renting back strategy.

Enter the Lease-Back or Rent-Back Agreement

great real estate agent can help negotiate an agreement where the buyers will agree to let the seller stay in the home for a period of time as long as rent is paid. In a competitive situation, the buyer willing to do this will often have the winning bid even though there is another offer as high or higher than his.

The agreement covering the situation states the length of time the seller will remain. It can be done with a specific date named or wording that allows the seller to remain up to a specific date with the possibility of her moving sooner. The amount can be a fixed figure paid out of the proceeds of settlement or a monthly amount, or a daily amount. It is usually, but not always, tied to the amount of the mortgage payment under the buyer’s new loan. Sometimes there is a deposit against damage, sometimes not. There is usually a clause saying the seller will hold the buyer harmless for any damage to himself or his property which occurs after the sale is consummated and before the seller moves.

An Example

I've recently heard of a very touching example of this idea in action. An elderly widow wanted to get away from the drawbacks of the home in which she’d raised her children. The home was large, had stairs and was located on a large, partially wooded lot with many mature perennials and shrubs. Both the home and garden were beautiful, but high maintenance

She went house shopping and committed to buy a one level condo unit that was currently being built in a new community. Her contract to purchase required a series of deposits and a firm indication as to her source of funds well before settlement on her new condo. The widow put her home on the market. A young couple with two sons was very anxious to buy it. The situation was competitive. They made the widow an offer and she countered. However, she did not raise their offer price, which was slightly below her asking price as she did not believe the young couple would qualify for a larger loan. Instead, she did something rather creative.

The widow countered with a proposal that she “rent back” for a period of “up to” a certain date (a date beyond her scheduled competition date on the condo) in exchange for a modest amount to be paid to the buyer at completion. The total rent back period was less than two months. And although the flat fee was less than the mortgage payment, it wasn't too far out of line since they made no payment on their new mortgage the first month. The couple really wanted the home and they accepted the counter offer. 

Another win-win situation was created. The widow only had to move one time and the young couple got a house they probably wouldn't have in a straight bidding war. 

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