"What is a seller rent back?", you may be asking yourself. A seller rent back is when the seller wants to stay in the house after they've already sold it, and they arrange with the buyer to rent the house back from them for a little while. Usually this happens because the seller doesn't have a place to go right after they've sold the house. Maybe they are in escrow themselves as a buyer ...but the transaction won't close for a few weeks. There are a few key things one needs to do before entering into an arrangement like this.
Things to do when preparing for a seller rent back1. Check to see if there's rent control, if you are the buyer. This house may be in a city with rent control. If this is the case, it is best for the buyer to seek counsel from a lawyer or the local rent board (both) to make sure that if worst case scenario happens, they can get the seller out of their new home without dropping a lot of money.
2. Make sure the paper work is done correctly. Make sure there's a contract or valid lease agreement, and that it covers all your standard tenant-landlord rights and responsibilities. i.e: How long is the seller staying? When will they be paying the buyer and what's the amount? How will they be making the payment? How much is the security deposit? Who pays what utilities? What is the process of terminating the agreement outside of it's agreed upon date (if the seller leaves early, or if the buyer needs to evict the seller)?, etc. That latter question might make some folks a little anxious, as they don't really want to talk about the "awkward" potential of things getting very messy. But, it's best to have yourself covered. The worst time to figure out how to settle an argument is when you're in one. On that note, another good thing to have down is whether there would be arbitration or not, if circumstances called for litigation. All of these items in the rental agreement may sound like a lot but don't worry, Realtors have standard paperwork for seller rent back agreements and we'll walk you through them.
3. Square away the homeowner's insurance. What happens if the seller burns the house down? They probably didn't mean it, but it happens. If the buyer paid for home owners insurance and the seller is renting the place, then the insurance company may not want to cover the loss. They may argue that the buyer did not get insurance covering a rental unit. This item can be avoided by having the buyer simply call the insurance company before closing escrow and making sure the insurance company will cover the buyer under a seller rent back situation. (And get the company's OK in a formal document.) They may charge an extra fee, but no worries, the seller should happily pay the difference, considering it's this option or live in a hotel until they square away their housing needs. Now, a seller may argue that they don't need to make sure everything's insured as it's not their home anymore. What they are paying for is coverage against litigation. It's the worst case scenario that the seller accidentally burns the house down, or the next big earthquake hits. ...but really, would the two parties rather be bummed out but ok, knowing their expenses will be covered, or end up in court bickering over who should pay for the loss? (on a side note: sometimes sellers continue to carry their insurance policy, instead of having the buyer's policy cover the added cost of a seller rent back. This seems a little too messy for me. The seller doesn't own the house anymore. Why give the insurance company the open to deny coverage based on this issue? Buyer's need to be insured to close anyway. Last thing anyone needs is two insurance companies pointing their fingers at each other.)
4. Insure your personal items, if you are the seller. Remember, the buyer's insurance covers the home, but this does not insure your magnificent blue ray tv or sophisticated art collection.
Posts
