What Is a Rent-Back Agreement? A Godsend to Home Sellers Not Ready to Move
By Angela Colley | Jul 18, 2016

What is a rent-back agreement? You’ll definitely want to know if you’re buying a new home while selling the one you’re currently living in. As you might imagine, this double transaction can require some really good luck, timing-wise, to get just right. After all, if you sell your home and have to move out before you’ve closed on your new home or even found a place to live, that means you’ll have to either couch surf or pay to stay in hotel limbo. Either way, you’ll have to endure the hell of moving twice.

Not so with a rent-back agreement, which gives the sellers extra time to live in the home after closing, essentially letting them become the new buyer’s temporary tenants. It doesn’t last for long—there are usually time limits—but it will give sellers a chance to close on their new home and pack up for the big move.

For the buyer, offering a rent-back agreement can have a couple of big bonuses. For one, if it’s a competitive market, an offer that’s flexible on move-out dates might very well have an edge. And the rent that the seller would pay the buyer could help recoup those hefty closing costs.

Done right, it can benefit everyone, but there are some things to consider before you jump on board.

How a rent-back agreement works
Like the name implies, rent-back agreements are legally binding agreements made in writing between the buyer and the seller. Both parties need to decide on a couple of issues, namely how long the seller will need to stay in the house after closing and how much rent the seller will pay to be there. To figure out what rent would be fair, check out realtor.com/rentals in your area, then do the math.

To play it safe, the buyer may also charge a refundable deposit, just like any landlord would.

“There’s always the chance that damages could occur while the seller is living there. That’s why it’s a good idea to have a holdback deposit of anywhere between $5,000 to $10,000,” says Emily Beaven, a Realtor® with Coldwell Banker in San Francisco.

Once everyone agrees, the buyer will close on the house, at which point the buyer will officially take possession and pay any upfront costs like a normal closing. In addition, the seller will pay any security deposits or upfront rent and remain in the house.

What rent-back agreements mean for the seller?
Getting more time to buy your next dream home can be a lifesaver, but don’t dawdle—a rent-back agreement won’t buy you much time.

“Typically, lenders won’t accept anything longer [than] 60 days,” Beaven says.

While you’re still at the property, there’s one more potential downside to deal with: It isn’t really yours anymore. You technically have a landlord now, which means if you cause any damages, you may not get your security deposit back.

What rent-back agreements mean for the buyer
If you’re not in a rush to move in, offering a rent-back agreement can help you get your dream home.

“It really can make your offer stronger,” Beaven says, but don’t take it too lightly. Since you’re the new owner (and the new landlord), you might run into a few new problems.

“The buyer, like a landlord, is now responsible for making any repairs should, say, your water heater break,” Beaven says. Plus you may have to make those repairs immediately.

Buyers will also have to worry about the sellers actually moving out on time. It’s rare that they drag their feet, but it can happen. If so, you will have to go through the usual process landlords do to evict your tenants, which is rarely pleasant. Still, odds are all will go fine, and your sellers will be grateful they won’t have to move twice.

Angela Colley writes about real estate and all things renting and moving for realtor.com. Her work has appeared in outlets including TheStreet, MSN, and Yahoo. Follow @angelancolley

Is Selling your home and renting back a good option

Are Sell and Leaseback Programs a Good Option for Boomers?
Posted on March 28, 2016 by Gordon Powers 3 Comments

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Are sell and leaseback programs a good idea-

Rising home prices often mean that real estate forms a top-heavy portion of many seniors’ wealth in retirement. This forces some to tap into their home equity in order to pay the bills and overcome their past failure to save.

Until recently, their only choice was a reverse mortgage, a secured loan in which lenders like HomEquity Bank make monthly payments to them, based on the equity that they’ve built up over the years, rather than the other way around.

Related Read: Case Study – Should These Boomers Get a Reverse Mortgage?

Reverse Mortgages An Expensive Option
One major attraction of this arrangement is that the payments you receive aren’t considered taxable income and thus won’t affect your potential government retirement benefits.

A common criticism of reverse mortgages is that they’re expensive, resulting in the view that they should only be used as a last resort. And the certainly are, compared to more common mortgage loans. But the ability to stay in the family home this way is really a bit of a luxury, argue plan sponsors, and having someone else assume some or all of the appreciation risk ought to cost something.

Selling But Not Really Leaving
But what if you could sell out altogether and then lease back your family home, freeing up all that cash and leaving you unexposed to the drop in home values that so many predict?

Although fairly common when it comes to commercial real estate – in those cases, a business sells a building to raise money, and then leases it back from the new buyer, usually with some tax breaks – sale and leaseback arrangements are a fairly new wrinkle in the residential housing market.

Enter Sell ‘n STAY, a new option for older homeowners looking to unlock their home equity by selling it to an investor/buyer and then entering into a lease agreement with the new owner – with you staying on as the tenant.

A Tenant In Your Own Home
The selling price is determined by comparing sales of similar homes in your neighbourhood backed, if you’re smart, by the findings of a certified appraiser, minus the normal commissions and selling costs.

You make the final decision as to the suitability of the landlord who, once your home is sold, will be responsible for paying taxes and any condo fees, as well as repairs and maintenance. You’ll still be responsible for paying utilities, telephone, cable, and renter’s insurance.

While the standard Sell ‘n STAY lease agreement purports to take into account typical landlord and tenant stipulations – i.e., a 10-year lease, which alleviates the concern of you being suddenly ‘kicked out’– you’d be wise to have the document scrutinized by your own lawyer and shaped to your advantage.

How will the two of you handle repairs, for instance? If you’ve been living in the house for decades, your view of appropriate maintenance may be quite different from the new owner’s perspective. Including a possible buy-back may give you some wiggle room here.

Rent Costs Will Rise Over Time
Expect your rent to be something like 5-6 per cent of your home’s sale price, although that will change over time despite any rent controls. In Ontario, for instance, the Residential Tenancies Act stipulates that annual increases can’t exceed 2.5 per cent, even if the CPI is running higher. Keep in mind that your annual rent cost isn’t ever likely to head lower.

On the surface, a sales-leaseback looks like it could be a win-win. Aging homeowners get money to fund their retirement; motivated buyers get a property with a built-in, and suddenly more affluent, tenant.