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What Is a Rent-Back Agreement?

By August 25, 2021No Comments
Rent Back Agreements - Home Buyers in Boise

Also known as a Seller’s Post-Settlement Occupancy or post-closing occupancy, a rent-back agreement is an arrangement in which the buyer of a sold home leases the space back to the seller for a certain amount of time immediately after closing. The terms of a rent-back agreement must be included in the contract for the sale of the property, although different states have varying real estate rules and required paperwork. For example, in some states such as Idaho an addendum to the contract must be written up that outlines the terms of the rent-back agreement. In other states, there is a standard form included with the contract that outlines the terms of the agreement. Any rent-back agreement paperwork must specify rent, security deposits, and deadlines. No matter how the terms are drawn up, the rent-back agreement essentially functions as a short-term lease.

The terms of a rent-back agreement are negotiable and entirely up to the buyer and seller. For the most part, buyers base their rent on fair market prices. Sometimes, but not always, a refundable security deposit is required, as well as a final walk-through prior to closing. Should a security deposit be required, damages incurred after closing are normally taken out of that security deposit and the rest refunded to the seller after the end of the rent-back agreement. The time frame is up to the buyer and seller, covering anything from a few short weeks to a few months after closing.

Why would a seller want a rent-back agreement?

In real-estate, particularly in hot markets, sometimes circumstances arise in which your current home has been sold but you don’t have your next residency lined up. Perhaps you’d like to cash out your current equity but aren’t ready to leave the house yet. Rent-back agreements are an excellent way for sellers to get around time-crunches while still receiving funds from the sale of their property. A seller may consider requesting a rent-back agreement if any of the following applies to them.

  • The seller needs the sale proceeds to apply them towards the purchase of their next home, avoid a foreclosure, or officially settle a divorce.
  • The seller would like to cash out on the equity of the home at the height of the market but aren’t ready to move from the house yet.
  • The seller has children in the middle of a school year and would prefer to allow them to finish out the year in the same school district.
  • The seller wants to avoid moving twice, first to a hotel and then to their new home. Moving twice becomes very costly and can be an inconvenience.

In most of these situations, a rent-back agreement might be a great option for the seller to ensure they get their money as quickly as they need it. Many sellers who are strapped for time aren’t aware that rent-back agreements are even an option.

Why would a buyer want a rent-back agreement?

In reality, it may be difficult for sellers to find buyers willing to accept a rent-back agreement. Even though the market in most areas of the country, particularly in Boise and the Treasure Valley, is currently highly seller-friendly due to a shortage of homes, rent-back agreements come with risks that most buyers just aren’t willing to take. For example, if the seller doesn’t adhere to the guidelines of the agreement, the buyer could find themselves unable to move into their new house until the seller has been formally evicted.

Plus, as with all rental properties, there is the potential risk of damage to the property after closing. The seller is usually required to put down a security deposit to cover any damages that occur after the final walk-through and closing of the home. Even so, many buyers in the traditional real estate market are risk averse and avoid extra complications as much as possible when buying a home.

Although a buyer requesting a rent-back agreement may be more of a rare occurrence, there are a few examples of when it may benefit a buyer.

  • The buyer must close the sale by a specific date but is flexible on their own move-in date.
  • The lender has locked their rate and rate-lock extensions are expensive.
  • This will be a buyer’s rental property, and they need to avoid tax penalties.

In these and other situations, a buyer may choose to close on time and rent the property back to the seller.

We always offer rent-back agreements to our sellers.

Willingness and ability to offer rent-back agreements is one of the major differences between selling your house to a traditional buyer vs. an investor who buys your house for cash. Cash home buyers usually don’t have rigid timelines or deadlines that they must meet, and don’t intend to move into the houses themselves. This allows far more flexibility for sellers to get their money without stressing about closing dates and immediately moving out of the property.

As cash home buyers in the Treasure Valley, we’ve seen many situations where sellers feel backed into a corner. They are on a tight timeframe and absolutely must sell their property faster than they’re able to move out of it. Unfortunately, there aren’t a lot of options for sellers in this position.  If you’ve found yourself in this situation, you can trust that we will be able to work with you and offer a rent-back agreement until you’re ready to take your next steps.

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