You’ve found the perfect home and you’ve put in a bid – but the seller wants a rent-back agreement. This will allow the seller to become your renter for a time after closing, and it’s usually used to make it easier on the seller to coordinate the purchase of their next home and their move.
Before you consent, however, you need to carefully consider the pros and cons of such an agreement.
What are the benefits?
Agreeing to a rent-back option can definitely make your bid more attractive to sellers, especially in a tight housing market. If the sellers need more time to find a new home or move, the flexibility offered by a rent-back agreement can make the whole situation less stressful and smoother. You’ll definitely earn their goodwill, which can translate into tangible benefits if there are small problems with the closing or any last minute issues. Plus, you get to earn a little money on rent, which can help defray your own moving expenses.
What are the drawbacks?
The flip side of a rent-back clause is significant in that you cannot move into your new home right away. If the rent-back period goes on too long, you could find yourself renting a hotel or lodging with friends while you wait on the seller to vacate. There’s also always a risk that the seller won’t leave when they agreed, and you’ll have to evict them. In addition, you have to consider the potential that the property won’t be maintained properly during the rent-back period and that you will have additional insurance costs.
A rent-back agreement can be worthwhile, but it needs to align with your comfort level for risk and your overall goals. If you do decide to permit one, make sure that the legal terms are concrete and clear.