A rent-back agreement is an arrangement where a homebuyer and seller agree to rent the home to the seller for a period after closing. You conclude the purchase or sale as usual, but the seller continues to occupy the house for a specified period. The agreement is legally binding, so you must understand it and confirm you can adhere to the terms before signing.
Below are some things you should know about the arrangement.
Agreement Terms
You must agree on a few things before getting into a rent-back agreement. For example, you must agree on:
- The rent you expect from the seller
- The lease period
- The deposit
- The inclusions
- Repair and maintenance responsibility
- Utility payments
You negotiate these issues just as you would with any other real estate transaction.
Benefits
A rent-back agreement benefits both the buyer and seller. If you are the seller, the agreement gives you time to buy your next home, especially in a sellers' market where selling a home is easier and faster than buying one. The agreement also allows you time to complete the construction of your next home, especially if unexpected complications force the builder to push back the original completion date you had budgeted with. Finally, it allows your children to complete the current school year.
If you are the buyer, the rent back may strengthen your purchase bid, especially when dealing with a seller looking for the same arrangement. The agreement makes sense in a seller's market because it reassures the seller that they have time to move out of their home. You can use the money to maintain or improve the property.
Precautions
Take precautions to protect the transaction and agreement, whether you are the buyer or seller. Below are some relevant precautions:
- The buyer should know they would be responsible for major repairs to the property (just any other landlord would) since they now own it.
- The buyer should know they might have to initiate tenant eviction processes if the seller starts to drag their feet once the rent-back agreement expires.
- The seller should confirm they can adhere to the agreement's terms and will move out on the agreed date.
Involve professionals such as Realtors and lawyers in the agreement. Let the professionals review or create the agreement to ensure it is fair and legally binding. Hopefully, you will conclude your real estate transactions successfully.
Contact a local real estate agent to learn more.
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