The Risks and Benefits of Rent-Back
I go over seller rent-backs, how they work, and their benefits.
I'm here today to talk about seller rent-backs. Seller rent-backs have been around for as long as I've been in business. They’re also formally known as a post-settlement occupancy, but it's often referred to by agents and consumers as rent-back. A rent-back is when a seller continues to live in the home the buyer is now the owner of after settlement takes place.
A rent-back can last for zero to 60 days if the buyer is purchasing the home as their primary residence. This time frame is limited by the buyer's financing. If somebody's buying a property as an investment property, a rent-back can be as long as the buyer and seller agree on it.
"In our current market, it's not uncommon for buyers to offer a free rent-back."
The benefit of a rent-back to the seller is it gives them a bit more time to get their future housing plans in order and that's why we're seeing a lot more of it today. For instance, if a homeowner needs to sell their home and also need to purchase a home or move into another home, they may need the proceeds of their sale to do that. In our market, 60 days isn't an incredibly long time, but it can make a difference. Sometimes rent-backs are only a few days when the seller has a settlement date that's very close by and they just need a few extra days.
The benefit to buyers is when they have a lease that doesn't end for a while. It can be beneficial for them to have the seller stay and pay rent for a little bit longer. In our current market, it's not uncommon for buyers to offer a free rent-back to a seller because they're looking for any opportunity to make their offer stand out from the crowd and be more competitive. In past, less competitive markets, the typical rent-back amount was prorated per day according to the buyer’s daily carrying costs.
What are the risks of a rent-back? The risk to a buyer is that a seller may not get out on time. That could be challenging if the buyer has a certain day that they plan to move in. Other than that, they're relatively low risk. There’s a deposit that's held in escrow while a seller does a rent-back. It's important that both parties document the condition of the property so that if there are any questions, you have something to refer to.
If you have any questions at all about any real estate terms or concepts, please feel free to reach out to us.