What is a Rent-Back Agreement?

Question: Dear Kari, I am trying to buy a home and my agent mentioned the word rent-back, can you please explain this? Answer: In working with a rent-back situation this allows the sellers to stay in the home after the close of escrow for an agreed amount of time. After the closing of the home sale, the seller will then become the renter. Typically the time is a few days or weeks. It is good to know that most lenders will only work with a 30 days or less rent-back agreement. A rent-back agreement allows the seller to stay in the home for a "rent-back period" of up to 60 days while the seller pays rent to the buyer. Rent-back agreements provide the seller extra time to move and get the home ready for the buyers. The cost of rent-back monies the seller pays is negotiable. Traditionally the amount is whatever the buyer's costs are. For example, if the buyers are working with a mortgage loan this would be the cost of the principal and interest, taxes, insurance plus mello roos and home owner dues, if applicable. These amounts are divided by 30 days to equal the daily rate charged. These money calculations are usually passed through to the buyers at the closing of the sale. In the event there was no mortgage loan then the current rental calculation would be used. However, in the event there is a multiple offer situation, buyers have been known to win the home by offering the sellers a free rent-back time frame. The buyer's Realtor will provide a formal occupancy agreement that will need to be signed by both buyers and sellers. This legal document will spell out the terms and conditions of the seller's stay in your new home and they protect buyers as well as sellers. In addition, it is most advisable for the buyers to charge a refundable deposit, just like any landlord tenant situation. This amount should be $5,000 or more according to the price of the home. Usually this deposit will be held by the escrow/title company pending mutual instructions from the buyers and sellers after the rent-back period has ended. Talk with your Realtor for more incite information and you may also want to talk with a real estate attorney. This information is not legal advice, yet an attempt to answer a question. Kari McCoy owns the Kari McCoy Group, residential real estate at Lyon Real Estate. She can be reached at 916-933-5274 or sold@karimccoygroup.com. #00841588