Are there pitfalls to the seller rent-back?
Dear Phyllis,
We have been saving for three years, going to open houses, and overall preparing to buy our first home. We found a La Crescenta home we love and made an offer, but the seller doesn’t want to move out until their kids get out of school. Our mortgage lender can only guarantee our interest rate for 30 days. So, the real estate agents suggested that we close escrow and the seller rents the home from us. They want a seller’s rent back. The seller proposes they will cover our mortgage payment, including property taxes and insurance. This isn’t our ideal scenario, but we agreed. Do you have any advice for us in this situation? 1st Timer
Dear 1st Timer,
First of all, congratulations on your home purchase! Inventory in La Crescenta remains tight, and being flexible got you a home you love. This scenario is common; I have represented numerous clients in seller rent-back situations without a problem. Some things to consider:
- Check with your mortgage lender to determine how long a rent-back they will allow. Some lenders will not offer the lower owner-occupied interest rate if the rent-back exceeds 30 days and may instead apply the higher non-owner-occupied rate. If this creates an issue, discuss with your Realtor® how to structure the rent-back outside of escrow.
- Require the seller to maintain the home in the same condition as when you agreed to purchase it. You may want to drive by the home to confirm that the seller maintains the landscaping properly. The seller should continue paying the gardener, pool service (if applicable), and other ongoing maintenance providers.
- Execute a fully completed rental agreement that clearly specifies the terms of the rent-back arrangement.
- In addition to a final walk-through (where you verify the condition of the home) before closing escrow, you should have another walk-through several days before the seller/tenant moves out. Furthermore, if you think there may be problems, take pictures.
Over the years, I have been involved in numerous rent backs without issue. Congratulations on your purchase.
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