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Buying House - Sellers Want To Rent Back For A Few Weeks - Questions

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Hello FWF – Not sure where to ask this, so it’s going here. Hopefully the replies will assist others should they come across this situation.

I’m buying a house, closing is in a couple of weeks. House was on the market for 1 day, got multiple offers. Somehow they picked mine, probably because I was willing to work with the sellers, as they are waiting on construction to complete on their new place and wanted to rent back the house after closing for a few weeks. This works out perfectly, as my rental lease on my current place is ending to almost perfectly aligns with the date they want to vacate the house I’m buying… sweet. We agreed on rent/compensation for the time frame in question, they will pay me at closing.

I met the owners, everything looks good. Legit and what appears to be genuine successful people.

I just want to protect myself and them in case the dark force aligns the stars and shit hits the fan. I have no interest in being a landlord. I don’t want calls for a clogged toilet after closing. I don’t want damage to the house or the appliance or anything else on the properly. I brought this up to my realtor (who is also the listing agent) – I simply called the listing agent as I knew this property would go quick – and the realtor came up with this solution…  Realtor bought a transferable home warranty on the house from a reputable nationwide company. If anything goes down, the sellers will call the warranty company to get whatever fixed and pay the negligible deductible while they are living in the properly. When they move out, if they break anything, they will replace/repair.  If I want to use the warranty when I move in I will then be responsible for the deductible. I am OK with this. The house is < 3 years old so everything is new.  

Am I missing anything? I want to be protected in case something falls through with their future house and for some reason they don’t want to move out. Any clever way to put that in the lease? $XXX per day if staying past so and so date? I assume they will also want some protection so I won’t go to ‘my house’ and change the locks or something stupid. 

Thoughts? 

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Agreed .. one of those things that can sometimes sweeten the offer for the seller.  3 years back i bought directly from ... (more)

prozario (Mar. 28, 2017 @ 4:18p) |

Five asterisks and ends in ed.

Assured? I guess OP is in good shape then.

¯\_(ツ_/¯

MrSamsung (Mar. 28, 2017 @ 4:23p) |

Just want to thank everyone for their input.

I heeded the advice of pretty much everyone and my attorney has drawn up the... (more)

Mr0ffic3r (Mar. 31, 2017 @ 10:57a) |

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Mr0ffic3r said:   
Am I missing anything? I want to be protected in case something falls through with their future house and for some reason they don’t want to move out. Any clever way to put that in the lease? $XXX per day if staying past so and so date? I assume they will also want some protection so I won’t go to ‘my house’ and change the locks or something stupid. 

Thoughts? 
 

  
I would take the questions above and paste them into an email to your attorney.

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What if their house isn't ready when your lease is up?

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The lease they are signing has a term.... This is normal typical stuff, not a crazy situation that the realtor hasn't dealt with before. I think you'll be fine, but if you aren't certain get a real estate attorney to help you out with the situation -- since we all know that dual agency you have going isn't in your best interest.

Pro Tip: Of course your offer was chosen because the realtor is going to get that fat commission on both sides of the deal.

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This seems to happen a lot and I've always read about insurance issues (since you aren't occupying the house) and issues protecting your house when these people leave and take stuff, destroy stuff and say it was like that before, or decide not to leave.

Yet it's still such a common practice. Probably because most of the time everything works out OK, but the consequences could be very high the few times that it doesn't.

Couldn't you just extend the close date by X days, weeks, or months and then reduce the purchase price by the amount of rent they are going to pay. That seems much cleaner.

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zonacat said:   This seems to happen a lot and I've always read about insurance issues (since you aren't occupying the house) and issues protecting your house when these people leave and take stuff, destroy stuff and say it was like that before, or decide not to leave.

Yet it's still such a common practice. Probably because most of the time everything works out OK, but the consequences could be very high the few times that it doesn't.

Couldn't you just extend the close date by X days, weeks, or months and then reduce the purchase price by the amount of rent they are going to pay. That seems much cleaner.

  

We already stretched out closing quite a bit - But my understanding is that they want to use the funds in regards to the new property.
 

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Not a residential but i had a similar situation with a non-for-profit purchase where the seller wanted to stay for two months past the closing date.  We came up with the fair rental value for two months which they paid us at the closing.  On top of that we asked for two additional months worth of rent as a deposit to be kept by us (buyers) attorney in case they don't move out and we had to go to court to evict them.  That was enough motivation on their part to movie out on the day they promised.  They also knew that they could not hide the assets (cash proceed from sale) because we knew where to find them in case we had to collect from a judgement.

As someone said above, let your attorney deal with this.

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This happens all the time.  You don't need any "clever" ways to accomplish it.  You just need a lease drawn up for this purpose.  If you are using a standard real estate contract, there is probably already leaseback provisions right in the standard language or available as an addendum.  Have your attorney review it to make sure all your concerns are addressed.

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Just make sure you have a lease agreement for x amount of days with no extension and what price. My brother did it for 2 months and it worked out fine.

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I'd actually try to get an agreement on the costs of tenancy if they DO stay past the planned number of days.

In Colorado, it is customary for sellers to get 3 days of possession after closing. For us, this was a $0 3 day rental with a specific and accepted Very High rate for any days after that. Not insane, but something like double the cost of mortgage payments, on a per-day basis. About as much as the rack rate at the nicest nearby hotels. If for any reason the sellers don't want to or "can't" move out, there's a pretty firm and defensible cost to them, and hopefully no need to turn it into an eviction.

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We just did a 60 day escrow since I didn't want any issues. Worked for both sides. They originally wanted lease for 30

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I had something similar, where the sellers wanted to stay an extra day that turned into 3. Fortunately, the title attorney drew up a leaseback agreement with us that covered the basics and it worked out OK.

For this longer-term situation, where their move-out may be delayed if their new house is delayed, I would do a few things. Definitely have a leaseback signed. Include a deposit, they're responsible for maintenance/repairs, and returning anything to the condition on the walk-through (selling) date. ALSO, I would put in an escalation where rent gets very very pricey after their 2 weeks or whatever. That will encourage them to move out and find a hotel... or you'll earn enough money you'll be happy to sit in a hotel earning $500/day or whatever.

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Most of my advice has been covered above. The question is how good is their housekeeping? When I was a Realtor, ordinary housekeeping on move out was my number one complaint by the new owners. Also, many of my clients did a second walk thru after the extended occupancy and the previous owner vacating the home. That also covers things hidden by furniture in the home. Escrow funds for the second walk thru plus six months top dollar rent. That and the idea of very high rent past planned move out date should be incentive for them to be good tenants. Add some language about who pays utilities and how the transfer will be handled.

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Renting after selling is normal. HOWEVER make sure your RE and possible RE Attorney need to draw up the proper documents in case they 'decide to overstay'.

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Home warranty companies are cumbersome at best, worthless at worst. Just google various home warranty company reviews...

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Mr0ffic3r said:   I have no interest in being a landlord. I don’t want calls for a clogged toilet after closing. I don’t want damage to the house or the appliance or anything else on the properly.
  
Then don't do it. You're responsible for taking care of repairs like any landlord no matter what contract you draw up if it goes against government regs. And if they become squatters afterwards, you have to evict them like any landlord and that can take months.
Mr0ffic3r said:   I brought this up to my realtor (who is also the listing agent) – I simply called the listing agent as I knew this property would go quick – and the realtor came up with this solution…  Realtor bought a transferable home warranty on the house from a reputable nationwide company. If anything goes down, the sellers will call the warranty company to get whatever fixed and pay the negligible deductible while they are living in the properly. When they move out, if they break anything, they will replace/repair. 

Of course the agent came up with a solution, otherwise they would lose the sale. Those home warranties have so many loopholes, deductibles or maximums that they are usually worthless, plus you have to use service providers approved by them who are often not the best around and need to be scheduled far in advance.

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phisher4 said:   Home warranty companies are cumbersome at best, worthless at worst. Just google various home warranty company reviews...
  This. 
You are an old timer here. If you are counting on warranty to really cover anything, good luck. Chances are nothing will happen, however this is your house and they are using it. Things can break and you have to get those fixed. 

What at is the name of warranty company. If it is AHS, you are *****ed. 

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I don't understand why people forgo a lawyer on the biggest transaction in their life (for most people).

Here's a question. They don't vacate at the end of the lease. How do you evict them?

They complain the furnace isn't working, do the landlord/tenant laws kick in and cause you fines for not getting it fixed quick enough?

Do state laws prohibiting commingled rent/security deposit funds apply to you? (this is the big expensive gotcha for many landlords)

They burn the house down, who's insurance pays who?

My mind could race on, but as others said, closing date <> possession date is not an uncommon occurrence and many attorneys have experience with it. The realtor is just going to tell you whatever it takes to close the deal. The realtor knows the vast majority of these are non-issues...but when it is, it's like winning the lottery (except in reverse).

Get an Attorney on retainer BEFORE there is an issue when it's cheap. Make sure they stay on until you take possession of the house. Your attorney will have a vested interest in preventing issues/misunderstandings before they happen.

I had one house purchase with a particularly difficult seller. Best $400 I ever spent.

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Around here, this is the rule rather than the exception. It's called "occupancy" and is handled at closing by the title company (closing agent). They withhold X days @ $Y/day in escrow. When the sellers move out and turn over the keys, you both sign and date the paperwork indicating such and send it to the closing agent. They then disburse the funds to you for the number of days "rented" and return the remainder to the sellers. It's a non-issue. Most typical occupancy is 30 days, but some go as high as 90. It's rare around here to get immediate occupancy. That usually happens only on homes that are already empty (foreclosures/second homes/etc).

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We had similar situation when we bought our current home. My realtor came up with fair market rent for 1.5 months and they paid it as a part of closing. We also had a 'professional cleaning before they leave' clause in our agreement. Your realtor should be able to draw up the necessary agreement, it's a standard practice.

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i think it is fairly common .. i had the same thing. Although in my case, we had a good relationship with the seller .. turned out we worked for same company.

My lawyer suggested putting into a contract an escalating rental agreement. Basically say $x for first week, $x+200 for week 2 etc .. just to make sure they leave the house asap. Now in my case, I had a good relation with the seller and didn't want to make him nervous or anything - and i had no issue if i moved in couple of weeks later. So i didn't put that in writing. The seller paid me and moved out on time.

But for someone you don't know ... i definitely suggest have the lawyer write something up, and perhaps withold some money in an escrow account - just to make sure they pay, and leave on time.

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Make them service the HVAC before closing. Most home warranties have a clause that allows them exclude repairs if the HVAC has not been serviced regularly.

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Folks do this all the time, and sometimes it works out fine...BUT

You are exposing yourself to tremendous risk by doing this. Are you being properly compensated for this risk you are voluntarily taking on?  If something goes wrong, you have very little recourse. I've personally seen rent back sellers hide significant and expensive defects with conveniently placed furniture, rugs, possessions, etc. and since they are still there before/after the house closing, they are easy to miss. Once the seller moves out, it's too late to do anything because the closing already happened and the burden is on you. You can mitigate this a bit with an escrow, but you better have clear terms for the escrow, and plenty (lots!) of money in it.

If something goes wrong with their other house purchase, they can just decide to hang out for a while, and eviction proceedings for you the landlord can be very (very!) long, depending on what state you are in. 

Don't count on a home warranty for anything, except maybe a bad faucet washer or something. They are written carefully to exclude almost anything of value, and whatever is not excluded is capped. Work is typically done by contractors who can't find legitimate work elsewhere.

Caveat emptor.

If there is no benefit to YOU, then don't do it.

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We did this as well. In addition to the home warranty, insist that they carry renters' insurance and send you proof. It is ridiculously cheap, they can bundle it with auto, and it covers you in case of a fire or flood, which the home warranty wouldn't cover.

ETA: Make sure your mortgage will allow this. I have a VA loan and they would not allow it beyond 60 days.

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I didnt' read all the replies, but something that wasn't in the OP post. Why are you doing this?

Why aren't you just delaying closing to a mutually agreed upon date that accounts for their need to vacate when their house is complete?
It sounds like this is contemplated from the start. Generally on rent-backs that is not the case. Why not just have them pay for a rate lock extension on your loan or something and close when they're ready?

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gatzdon said:   it's like winning the lottery (except in reverse).
Not winning a lottery?

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It's not that uncommon when the seller has other needs with regards to their next purchase. I bought a home back in 2003 and allowed the sellers up to a 60 day rent back at my new PITI calculated out per day, with no minimum. The home they were buying had some roof issues and they decided to replace the roof before moving and took me up on the offer (after closing).

Since I still had my other home in town and didn't need to move that was fine. This got me the house in a market that was seeing 15-20 offers per home and serious bidding wars.

-------------

My brother sold his home in the next town over and it closed last week and the new buyers gave him 60 days rent-free as a condition of getting their offer accepted...

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ojosazules976 said:   It's not that uncommon when the seller has other needs with regards to their next purchase. I bought a home back in 2003 and allowed the sellers up to a 60 day rent back at my new PITI calculated out per day, with no minimum. The home they were buying had some roof issues and they decided to replace the roof before moving and took me up on the offer (after closing).

Since I still had my other home in town and didn't need to move that was fine. This got me the house in a market that was seeing 15-20 offers per home and serious bidding wars.

-------------

My brother sold his home in the next town over and it closed last week and the new buyers gave him 60 days rent-free as a condition of getting their offer accepted...

  
Agreed .. one of those things that can sometimes sweeten the offer for the seller.  3 years back i bought directly from a homeowner, he wasn't even planning to sell.  I sent letter & he was interested to hear out.  He was planning to move, but didn't have any Target home, and wasn't sure when he will move.  Timing worked out, and when we picked a closing date, i told him  he can stay for 1 or 2 months if needed  and just rent day to day.  Kind of removed that part of anxiety for him and that kind of pushed him toward selling the place.  He basically bought a house but had to be renovated and the renovation ran few weeks late.   

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king0fSpades said:   
phisher4 said:   Home warranty companies are cumbersome at best, worthless at worst. Just google various home warranty company reviews...
  This. 
You are an old timer here. If you are counting on warranty to really cover anything, good luck. Chances are nothing will happen, however this is your house and they are using it. Things can break and you have to get those fixed. 

What at is the name of warranty company. If it is AHS, you are *****ed. 

Five asterisks and ends in ed.

Assured? I guess OP is in good shape then.

¯\_(ツ_/¯ 

rated:
Just want to thank everyone for their input.

I heeded the advice of pretty much everyone and my attorney has drawn up the "Occupancy Agreement."

I will be looking forward to posting that this was a seamless process in a few weeks when my 'tenants' vacate the property.

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