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IssaquahK
Posts: 11
Registered: ‎10-11-2009
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Current owners want to rent back after closing

Hi,

We found a house and the current owners want 30 days after closing to rent the house back from us. What are the kinds of things to be careful about and account for in the offer/papers to make this go smooth?

Thanks!

Silver Contributor
NKMom
Posts: 494
Registered: ‎10-30-2009
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Re: Current owners want to rent back after closing

[ Edited ]

First of all, how much do you like the house?  Are you inclined to agree to the rent back because you are afraid to lose the purchase?  How comfortable are you with renting back to the owners?  Do you need to move in right away?

 

We are currently renting back from our buyer, and both parties are extremely comfortable with the decision.  We are scheduled to move out on 01/31/2010.  We kept and adjusted our home owners insurance and we also purchased Home Warranty for the buyer because it was a Standard Sale.  We agreed to make any minor repairs ourselves, and with the way we keep our house (him and his agent came unannounced one day ~ which irked us a little), he had no problem with us renting back.  So much so that he didn't even ask for security deposit from us.  We did a final walk-through and we complied with all of his repair requests prior to COE.  We will have another rental final walk-through at the end of January.

 

The rent back will be included in the addendum on your purchase agreement, & the amount (which usually is your monthly PITI), will be credited to you directly from escrow.  The seller will not get the 3 days after COE allowance, and rent back date starts on the dot the day you close escrow.  Make sure the purchase agreement states the exact date the rent back ends, so that there will be no confusion on both sides. 

 

There are also ramifications, for instance, what if something breaks, do you want the owners/renters to pay for all damages, or do they expect you to file a claim on your Home Warranty policy (NOT your Home Insurance)?  Even though our buyer didn't ask for a security deposit, I would strongly suggest you ask for one, IF you are comfortable with the idea of rent back.

 

If you are not comfortable with rent back, have you considered extending the escrow to 60 days?  I think that may be a better choice for both parties especially if you are not comfortable with the idea, and you do not need to occupy the property right away yourself.

 

I hope this helps.  Good Luck and Happy New Year!

Message Edited by NKMom on 12-31-2009 05:16 PM
Contributor
dani24
Posts: 45
Registered: ‎11-21-2008
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Re: Current owners want to rent back after closing

Rent back periods are fairly common. Here are a few things you should be requesting/thinking about:

 

1) The seller generally pays a pre-determined amount. This could be a proration of your PITI (i.e. if PITI is $3000, then the seller would pay $100/day). Or you could charge them fair market rent (whatever a similar home would rent for). Or you could charge them a much larger sum in order to help discourage them from sticking around longer than they need to (i.e. you could charge $100/day for the first week, $150/day for the second week, $200/day for the third week, etc). Be sure to have whatever has been decided clearly spelled out in writing, and have both parties sign.

 

2) Also be sure your offer/contract, or rental contract (or however you're officially putting it in writing) stipulates how long the seller is allowed to stay. 

 

3) Ask for a security deposit. This can be held in escrow. Make it pretty sizeable, so that if they don't pay the rent, or damage something, or take things from the property that were supposed to stay, or they overstay the rent-back period, etc, that you can collect damages from this security deposit without having to taking them to court. Spell out in the contract what kinds of things could cause you to withhold funds from the security deposit.This also entices them to leave sooner rather than later, so they can get that money back.

 

4) Check with your lender. Some lenders have restrictions on rent-back periods. Some won't allow it at all, some will only allow 30 days. The last thing you need is to break the terms of your mortgage contract with the lender, and end up in a huge mess because you didn't check with the lender first. Also, check with your real estate agent to be sure there are no state or local laws that could have an impact (i.e. Deed of Trust requires you move in within 60 days).

 

5) Be clear on who is to pay for utilities during the rent back period. Have this in writing. Ideally, the seller should maintain the utilities in their name until they officially vacate.

 

6) Require that the seller either maintains their homeowner's insurance or acquire renter's insurance for the rentback period. Also, have it put in writing that you are not responsible for their persons or property during the rentback period.

 

7) In addition to the walk-through you do just before you close, require that another walk-through be done before they vacate. Definitely still do both. You want to still do the one before close, in case something is not right, and then you can hold of on closing until it's fixed. And doing the second one when they vacate helps you to ensure that things are still in the condition they're supposed to be, and that they didn't remove anything they weren't supposed to.

 

8) You could also consider just extending the escrow period so that you close 30 days later. That way you don't even have to worry about this at all!

 

 

 

Silver Trusted Contributor
Rebeccah
Posts: 841
Registered: ‎09-08-2008

Re: Current owners want to rent back after closing


dani24 wrote:

You could also consider just extending the escrow period so that you close 30 days later. That way you don't even have to worry about this at all!

 

 

 




Well, that depends on why the sellers want the rentback. If it's so that they can apply the proceeds of the sale to the downpayment for another house (and hence, they have to close on their sale before they close on their purchase), then extending the escrow period doesn't help.

Rebeccah
Trusted Contributor
Loan_Educator
Posts: 135
Registered: ‎12-01-2009
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Re: Current owners want to rent back after closing


Rebeccah wrote:

Well, that depends on why the sellers want the rentback. If it's so that they can apply the proceeds of the sale to the downpayment for another house (and hence, they have to close on their sale before they close on their purchase), then extending the escrow period doesn't help.

 

That might be the case, but shouldn't be most of the time. Simultaneous closes are common practice, where proceeds needed from the sale of one transaction will just be applied by escrow directly over to the proceeds needed to close the other transaction. But you're right that there may be some alternative unique circumstance going on. Overall, I recommend at least attempting to negotiate an extension to the closing date first, as the better option to a rent-back if at all possible.

 

At any rate, to the post originator, I highly recommend you check out the thorough discussion that recently took place on this very subject in the Bay Area forum for some additional considerations. Here's the link, and good luck!

 

http://forums.redfin.com/rf/board/message?board.id=BayArea&thread.id=15659

Clay
Contributor
schimienti
Posts: 14
Registered: ‎01-02-2010
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Re: Current owners want to rent back after closing

Wow, these are incredibly helpful posts! We just received an offer on our house, and accepted it, and the buyers would like to close pretty quickly in order to lock in a great rate. They won't be ready to move in by that time, and there is no way that we could find a new home in that period, but we figured we'd stay in a long term hotel or something. They actually asked if we wanted to stay and rent from them, probably because they need the money to cover their mortgage and rent in 2 places.

 

They basically asked if we (the sellers) would be willing to rent for a month, which I guess works for everyone, but then told us that it had to be $3000. Is that standard? I'd never rent ANY house for $3000 (it's like burning money; no interest deduction, no equity) but I'm not sure I have a choice. I can live in an extended stay hotel (with my husband, 14 month old and 3 year old, talk about fun), pay to put all of our stuff in storage, and deal with the headache of moving twice, essentially, and living out of a suitcase for a month or so, or just accept the $3000 rent. We chose the latter, but it didn't make me happy.

 

What if they can't close in the aggressive time that they have laid out? They are giving a closing date of March 1, which is pretty aggressive for first time home buyers (FHA loan). I'd be shocked if they could do it, but maybe I'm not as knowledgeable. What if they can't close by then? What happens to the agreement for us to rent from them? Does it just get pushed back? Are we still obligated to rent from them if the date is delayed and we've found a new home?

 

Platinum Super Contributor
Nanomug
Posts: 10,330
Registered: ‎05-30-2009
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Re: Current owners want to rent back after closing

Suggestion:

-add a penalty of about $100 a day after 35 if they don't close.

-put in that you will notify them when the loan approval comes in if you'll be using the 30 days or not

-usually the rent is the p/i of the new loan.  You can figure out that amount.  You can negotiate the amount.

-perhaps temporary housing would allow you to rest up a bit from packing/moving/cleaning before you start fixing up the new place. 

 

The problem with the 30 day rent back is what happens if you haven't closed and still need to have temporary housing.  

 

Also, some loans can lock in a low rate for 60 days.   It's worth checking out.

 

When they close will determine how soon after close the first payment is due.  e.g. if they close on the 10th of February they will make the first mortgage payment April 1.   If they close on Feb. 28 the first payment will me made on April 1.  Closing the end of January would make the first payment due Mar. 1.

Trusted Contributor
Loan_Educator
Posts: 135
Registered: ‎12-01-2009
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Re: Current owners want to rent back after closing

From the Seller's perspective, $3,000 seems like a good deal. If it helps, don't think of it as rent. Think of it more along the lines of a sales concession. In other words, would you have accepted an offer for your house of $3,000 less than the offer you got? If so, think of it more like that, except that in this case, you are being given the bonus of extra time to find another property and prepare to move.

 

As to the closing date, a March 1 closing is far from aggressive. Quite the opposite, in fact. I wonder why they stretched it out so long? They are paying more in rate or costs for having a 60-day rate lock than they would have if they'd only locked for 30 days. Most buyers right now are setting their purchase closings at 30 days or less, so they can lock their loan at the best possible pricing, because 30 days is more than ample time to close a purchase in today's market.

Clay
Contributor
schimienti
Posts: 14
Registered: ‎01-02-2010
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Re: Current owners want to rent back after closing

Thank you again to all for your excellent comments and advice.

 

To answer the question re the closing date of March 1, we don't have a signed P&S yet; in fact we have not had an inspection yet. The inspection will be in about 10 days; the buyers needed a weekend to do it, and we could not do this coming weekend. So no P&S until after that, and they have a mortgage contingency that expires aorund 1/26 I think, so they won't know for sure if they got the financing until that time. They do have a 30 day lock. Remember, February is short, not even 30 days, so although it seems like a long time, it's going to be a 30 day lock from the day the mortgage contingency expires.

 

I'm resigned to the $3000 monthly rent, but what we are going to do is see if we really do need to rent and stay here. Maybe we won't have to. It's hard to think of it as $3000 less on the sale price, because they are getting SUCH a great deal, we are losing SO much money (we bought at peak) and we are contributing to their closing costs too. So these folks are walking away with an amazing deal and a great home in a fantastic neighborhood.

 

I think for us it makes sense to realize that we'd have to pay rent and storage somewhere else, so here it's just all rolled into one. That sort of makes it more palatable for me, if we do end up staying for a month. It's strange to think that you are renting a place that you have owned for 5 years....

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thomscric83
Posts: 2
Registered: ‎03-10-2010
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Re: Current owners want to rent back after closing

Rent it back to them. It's your property as soon as the papers are signed. I had a very similar issue, and I had a RE lawyer write the terms and agreements of the rental. We closed, they signed the closing papers, then they signed the rental agreement. Ended up costing them $1200 in the end, but they got to use the storage for their desired length of time. Writing that check again would have been painful, I'm sure, considering this was simply renting an outbuilding with their crap in it, not even living there, and this was a land-only transaction (low cost).

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