In the process of transitioning from selling their current property to purchasing a new one, homeowners often confront a significant challenge. The financial dynamics may require certain sellers to sell their existing property in order to generate the necessary funds for a down payment on their prospective home. Fortunately, a practical remedy exists that alleviates the complexities of finding temporary housing during the intermediate phase – typically the period between property sale and the completion of the new purchase. This remedy comes in the form of a "rent back" arrangement or post-settlement occupancy agreement, as stipulated in contracts.
A rent back arrangement involves the buyer agreeing to lease the property back to the seller for a specified duration following the closing date. This arrangement can serve as a valuable bargaining tool in a competitive real estate market or as a gesture of consideration towards sellers with extended timelines.
Jennifer Myers, the founder of Dwell Residential (RLAH Real Estate), provides further insight into the circumstances where a rent back arrangement proves beneficial and outlines the associated risks:
Commonly termed a Post-Settlement Occupancy Agreement within contracts, a rent back arrangement is most commonly utilized when a seller needs assurance that their current property's sale has been completed, thus providing them with the necessary funds to facilitate the purchase of their new property, or a similar scenario.
This arrangement establishes a non-tenant relationship whereby the seller holds a license to inhabit the property for a predefined number of days, generally at a daily rate mutually agreed upon by both parties. In a competitive real estate market, it's not unusual for a buyer to enhance their offer by allowing the seller to reside in the property without charge for a period following settlement.
If a buyer chooses to proceed with a rent back arrangement, they typically conduct a pre-settlement walk-through to assess the property's condition on the day they assume ownership. Additionally, they confirm the satisfactory resolution of any issues identified during a home inspection. The buyer ensures that a substantial deposit is held by the title company, serving as a safeguard in the event of damage caused by the seller during their occupancy or move-out phase. However, as the buyer now holds ownership of the property, any unforeseen property malfunctions (e.g., sudden HVAC system failure) become the buyer's responsibility for repair, not the seller's.
Upon the seller's departure on the mutually agreed-upon date, the buyer conducts a final walk-through. If everything proceeds smoothly, the buyer instructs the title company to release the deposit to the seller.