How Does a Rent Back Work?

A Sellers Post Occupancy Agreement, more commonly referred to as a “Rent Back”, simply means that the sellers can remain occupants of the home after settlement. The first thing to know is that the term “Rent Back” is slang, and frankly not very good slang, because it gives people the wrong impression. This is not a rental situation at all. Any “rules” you know about rentals? Most don’t apply. So how does it usually work? Read on….

WHY? Common reasons for sellers to ask for these is that they are moving into a place where they will need to deliver the cash from their home sale for their next home purchase in advance of the time they will be able to physically move from the property. Most buyers are not very excited about buying a home that they can’t move into right away, so we see these more in a “sellers’ market” where the sellers have the advantage in negotiating.

HOW LONG? Sellers typically remain in the property for a finite period of time, which is determined at the time the agreement is made. Most agreements are for a few weeks. It’s important to note that most home purchase loans require that sellers move out within 59 days of settlement, so while the term of the rent back period is negotiable, it’s likely limited. This is not intended to be a long term arrangement. If a longer rent back is needed the buyer would be forced into an investor loan, the cost and terms of which are generally not as attractive as other loans for buyers purchasing a home to live in. And if the seller is staying for 2 months or more, I typically recommend a true rental situation with a separate written lease.

HOW MUCH? Usually sellers pay, at closing, for the time they expect to remain in the property. What they pay is based on a per diem cost, generally reimbursing the buyer for his costs (loan payment, HOA fees, etc). In a strong sellers’ market, the seller may be given this period for “free” as part of the buyer’s effort to entice the seller to accept his offer.

MAINTENANCE Unlike a tenant/landlord situation, sellers are obligated to maintain the premises in the condition it was on the date of settlement (or another date if that is varied by agreement). If a pipe bursts, the seller has to fix it, plus any consequential damages. If the refrigerator goes bad? It’s the seller’s responsibility to remedy or replace that.

DEPOSIT It is customary for sellers to agree to provide a deposit to buyers in case of damages. Though it’s common for the closing company to hold the deposit, it’s also allowable for the buyer to hold that deposit. Personally, I prefer the buyer hold the deposit in their possession; after all, the seller is holding the house in their possession, so it only seems fair to me. Regardless of who holds the deposit, it is released immediately (within a few days) if there are no damages.

Need more information? I’m here to help.

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