Rent-Back Negotiations

You’ve sold your home – congratulations! You’ve found another home to buy – congratulations again! Unfortunately, coordinating the settlement dates on your current home and your new home isn’t working out quite as you planned.  Rather than putting your belongings in storage and staying with relatives or in a hotel for a few days, you might be able to negotiate with your buyers to stay put in your own home until the next one is ready.  How long you can stay depends on two factors: lender rules and the needs of your buyers.  Most lenders allow a rent-back for a maximum of 60 to 90 days. After that, the home is considered an investment property and that will change the terms of your buyers’ financing.  Your buyers may have needs of their own. They may have to vacate their current residence by a certain date, or they may have plans to renovate your home before they occupy it. How much you can negotiate with them will depend on your respective needs and market conditions. In a sellers market, for example, you may have an easier time getting your buyers to agree to an arrangement that suits your needs. If you do manage to schedule a rent-back, you’ll need to consider multiple aspects of the agreement.

Negotiating Rent

The buyers will be the ones to decide how much rent to charge you for the days or weeks that you stay in the home. Typically, since the buyers will start paying the mortgage and other costs of the home after the closing, you’ll be charged the equivalent of the buyers’ principal, interest, taxes and insurance on a prorated basis. For example, if their mortgage payment is $2000, they may charge you $67 per day. The rent could also be based on local market rents. Some sellers are shocked by the amount they’re expected to pay, particularly if they’ve owned the house for a long time and have had a relatively small monthly mortgage payment. You and your listing agent and the buyers and their agent can negotiate the rent back terms terms, but the buyers typically have the upper hand in this situation because they’re the new owners of your home.

Responsibilities and Liability

Aside from the rent, you and the buyers need to have a clear, written agreement about everything associated with the house. Who will pay the utility bills? Who’s responsible for any necessary repairs? Typically, the buyers will have switched the utilities into their names at the closing, but you can either delay that switch or reimburse the buyers for utilities while you are in the house.  The buyers will have homeowners insurance on the property, but you should arrange for renter’s insurance on your personal possessions. Both types of policies have liability coverage in case something happens to someone on the property. However, if the house is robbed or catches fire while you’re renting it from your buyers, it’s possible that the buyers could hold you responsible for negligence. You may want to discuss this with a real estate attorney and insurance agent to make sure you’re adequately protected.

Walk-Through Arrangements

Another important consideration with a rent-back agreement is how and when to schedule a walk-through for the buyers to assess the home’s condition. Generally, the buyers will have a walk-through before the settlement to make sure the property matches the condition it was in on the day it went under contract. You and the buyers should agree on another walk-through after you move out to make sure the conditions of the contract have been met.

In spite of all these important negotiations and arrangements that must be made, rent-backs are fairly common and provide an easy solution for the sometimes complex maneuver of moving from one home to the next.

-From Realtor.com