Key Considerations for a Seller Rent Back Agreement
written by: Kristie Lorette•edited by: Jean Scheid•updated: 10/17/2011
Make sure you understand the intricacies of this type of transaction. As you and the buyer are putting together the agreement, make sure you include these seven primary and key elements.
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A seller rent back agreement comes into play when a seller sells a home to a buyer and then the seller rents the same home back from the buyer. The agreement permits you to sell your home and rent it back from the buyer, even after the closing on the property has transferred ownership from the seller to the buyer. If you are the new owner of the property that is allowing the seller to rent the home from you, you need to have a written agreement that spells out the terms and conditions of the written rental agreement.
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The first item you want to spell out in the written rental agreement is the start and end dates of the rental period. For example, assume the closing on the property takes place on the first of June. Technically, the closing date is the date the ownership of the home transfers from you to the buyer. If you and the seller, which is the old homeowner and now the renter, have agreed you will rent the property back for the rest of the year, then the term the renter would include as the rental period is June 1 to December 31 in the year of the closing.
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When you sell your home and rent it back from the buyer, the second consideration of the rental agreement is the amount of the rent. The rental amount can vary according to the term of the rental. If you are renting for a short period, such as a few weeks, then you may agree to a daily rental amount. If you are renting on a monthly basis then, it may be a monthly rental amount. Be sure that the rental amount and how the fee is determined is included in the lease agreement.
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Any rental property owner typically requires a renter to put down a security deposit in case the property sustains any damage while the renter is living in the property. The buyer may or may not require you to make a deposit. If a security deposit is made, make sure the written agreement includes the amount pf the deposit, in what type of account the deposit money will be held and under what circumstances the deposit will or will not be returned.
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If your rental payments are late or a check is returned for insufficient funds, the agreement should also list the late fees or returned check fees the new owner will assess.
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Utility Payment Responsibility
The other specifics you want to list in the agreement is utility payments. Typically, these payments include water, electricity, gas, garbage and sewer payments. If it is condominium or a townhouse, the agreement should also include maintenance fees, which are the fees paid to the homeowner’s association. Some sellers will agree to pay the homeowner's association fee from the rent payment you are making. Most landlords expect you to pay for your own usage of electricity and utilities. It is up to you to determine this with the buyer and make sure the agreement you come to is part of the agreement in writing.
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Right of Buyer to Enter Property
While the buyer now technically owns the property, in a seller rent back situation, you and your belongings are still living in the home. For this reason, you should also come to an agreement on when and if the buyer has the right to enter the property. A typical agreement is that the buyer can enter the property, but that they have to provide the renter with advance notice as to when they will be entering the property and sometimes even provide a reason as to why they need to enter.
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Seller's Duties to Maintain the Property
The buyer of the property has the expectation to receive the property in the same condition they bought the property. A major portion of the agreement should spell out what the condition is. The agreement should also state the exact consequences the renter faces if anything happens to the property. For example, if there is damage to the appliances, then the agreement may put a value of repair or replacement value the owner will retain from your security deposit. The terms also typically include how you will be expected to pay for any damage that is above the amount of your deposit.
Depending on the arrangement you make, you may be able to sell your home and rent it back from the buyer. This is a good arrangement if you need to find a new place to live or if you only need to remain in the property for a short period.