Real Estate News

By PATRICK BARTA
Special to RealEstateJournal.com

Question: We offered the asking price on a home recently and received a counteroffer from the sellers in which they asked to "rent back" the home for a month following the closing. My agent said she has had some bad experiences with rent-back situations, so she thinks we should counter by suggesting the sellers get a bridge loan for a month. The market is hot in our area, and we really want this house. What should we do?

-- Elizabeth, Charlottesville, Va.

Elizabeth: It's fairly common for sellers to ask to "rent back" their home for a short period of time while they wait to move into their new house. Some real-estate agents dislike the practice because they worry that something could go wrong with the property while the sellers are staying on as renters.

But most agents view rent-backs as perfectly acceptable, and as long as you take a few steps to protect yourself, everything should work out fine.

First, establish a fair rent for the property before you get to the closing table, and collect the money up front. There's no need to try to milk the home sellers for every penny they can afford -- doing so will only breed ill will -- but it is important to charge enough to cover all your expenses as the new owners. That includes your monthly mortgage, plus taxes and insurance. Also, be sure to settle who will be responsible for maintenance and utility expenses.

Second, ask the sellers to set aside a damage deposit that can be tapped in the unlikely event that problems arise. In some cases, real-estate agents insist that sellers set aside 2% of the sales price of the property. Other agents believe it's not necessary to demand that much; either way, you want to make sure the sellers have some serious money at stake so that they won't treat the place like a hotel room.

Third, set a departure date for your new renters, and establish a daily penalty if they fail to vacate on time. Some real-estate agents believe the daily penalty should total 10% of the deposit; others believe a simple $100 a day is sufficient (assuming the house is not a million-dollar mansion).

Finally, you should be sure to do a rigorous inspection of the house before the rental period begins, taking note of any dings you find. That way, you'll have a record of the house's condition in case there's any damage to the property when the old owners vacate.

Arranging the rent-back terms might seem like a hassle, but many real-estate agents have standardized contracts available that can make the process a lot easier. And in today's strong housing market, buyers often have little choice. "The sellers own the commodity, and therefore get to choose the rules," says Marty Rathmanner, a sales agent at Coldwell Banker Burnet in St. Paul, Minn.

Indeed, Chicago real-estate agent Elizabeth Ballis says she's been doing more and more rent-backs in recent years, partly because the housing market has been so hot, giving sellers more leverage over buyers. She says she's only had one negative experience with a rent-back -- in that case, the mover bashed in a wall, causing $2,000 worth of damage.

"I can't tell you there's not some risk" when you agree to a rent-back, says Ms. Ballis, who also works for a Coldwell Banker office. But with competition for top houses still fierce in many areas, "I certainly wouldn't have my buyer not buy a house because of it."