Inside Real Estate: Seller Rent Backs
Seller rent backs are when the seller, as part of the negotiation is allowed to stay in the property after close of escrow. It makes a transaction more convenient for the seller, especially if they are not quite ready to move or they need to go secure another property. This gives them the time. It is fairly common in local real estate.
The seller normally will pay the buyer’s carrying costs during that rent back period. The normal costs the seller will pay are the buyer’s prorated mortgage payment and property taxes, insurance. That is not always the case. It can be negotiated to a fixed amount. Oftentimes, if the buyer is competing for the property, they will offer the seller free rent so the sellers can stay with out cost.
There are two types of rent backs. There is a fixed term that is where the seller agrees to rent back until a specific date. In that case, it is pretty straightforward.
The other situation is where there is an option to rent back where the seller arranges the option to rent back for up to 60 days after close of escrow. That gets a little trickier because there is the question of notification. Clearly if you are a buyer, you want to get some notice of when the seller plans to be out.
You do not want to get a phone call on a Wednesday saying, “We will be out tomorrow, Thursday.” Oftentimes the buyer needs more notice. It is a good idea to insert language that stipulates when exactly the seller needs to notify the buyer. Perhaps a clause like, “Seller to give buyer 30 day notice of intent to vacate.” That way the buyer has 30 days notice and they can make their plans accordingly. It is important to have a separate agreement that details all of these rights and responsibilities.
Security deposits are always a good idea if you are representing a buyer. It is good to have some money in escrow held, to compensate for any damage to the property when the seller moves out because you are not able to see the property at close of escrow; the seller is going to remain in possession.
The other consideration is that the seller is required to maintain the premises in the same condition as it was when they closed escrow. So if you are a seller and you are renting back, you need to maintain the property the way it was when the buyer purchased it and you are not really a strict tenant in the eyes of the law. You do have some holdover responsibilities as the seller as well.
Seller Rent Backs are an important part of a lot of real estate transactions right now. It is important to understand the rights and responsibilities of each party.
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