Your house sold too fast, and you don't want to have to move twice? This often happens when you are having a new home built, but aren’t sure of the completion date, or maybe you are just not able to get movers for a few days after the proposed close date on the sale.
Is there any way you can sell your home so you’re sure of the funds being available for the new purchase, but continue to live in your old home until your new digs are ready? Yes, there is an option, and we refer to it as a "rent back" strategy.
Enter the Lease-Back or Rent-Back Agreement
The particulars of this strategy are frequently used, but they can give some relief to the sellers, and this option could be a great incentive to make your offer to purchase look great, especially in the strong seller’s market we’re experiencing. If you are the buyer, you can close and take ownership, and agree to let the seller stay in the home for a short period of time as long as some rent is paid. In a competitive situation, the buyer who can be this flexible may actually win in a multiple offer scenario.
The agreement covering the "rent back" situation states the length of time the seller will remain and how much rent will be paid. Usually we do the rates on daily amount based on new mortgage payment, and there's a steep increase in daily fees if the seller overstays their welcome. So, the sellers may rent back for $45 a day for 15 days, but on the 16th day it will go to $300 a day. The large increase helps keep everyone on target. Frequently, the sellers have a short term rental insurance for their property too. If you go past a 20 day term, you're going to need to get a lease drawn up, but we currently have paperwork to cover up to 20 days for a rent back.
I’ve recently seen a very pleasant example of this idea in action. An elderly widow contracted to move into a senior community in our area. She had purchased it, but she wanted to take her time to get some work done before she moved in. She wanted to have all the painting and new floors installed before she moved in so she didn't have to stress with dealing with handymen working in her home.
She put her current home on the market, thinking it would take a little longer to sell it. Not likely in this market though. A young couple with two sons was very anxious to buy it. The situation was competitive. They made the widow an offer. She countered their original offer. She did not raise their offer price, which was slightly below her asking price. She did not believe the young couple would qualify for a larger loan. Instead, she did something rather creative.
The widow countered with a proposal that she “rent back” for a period of “up to” a certain date (a date 15 days beyond the closing date) in exchange for a modest flat sum to be paid to the buyer at settlement.
The total rent back period was less than fifteen days, but it gave her enough time to get things in order. She avoided two moves, and the flat fee was less than the amount of the new mortgage payment for the buyers. The couple really wanted the home, so they accepted the counter offer.
Another win, win situation was created. The widow only had to move one time and the young couple got a house they probably wouldn’t have won in a straight bidding war. If you find yourself in a situation similar to either the widow or the young couple, perhaps you can work out a similar solution. It's a good tool to keep in your cabinet when you're encountering a strong seller's market like we have now.