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Do You Know What a Rent-Back is?

A rent-back agreement is a legally binding rental agreement between a home seller and buyer that allows the seller to remain in the home after the close of escrow in exchange for rental payments. The seller becomes a tenant and the buyer takes on the role of a landlord. Most rent-backs are short term usually ranging from a week up to a few months. Sellers generally ask for a rent-back when they need time to pack up and move, need time for kids to finish out the school year or have to find a replacement property.

During the offer process, the terms of the tenancy relationship are outlined in a rent-back agreement that contain the following terms:

Possession: This addresses how long the seller will remain in possession of the property and the consequences if the seller does not leave by the specific vacate date.

Rental Payment: On a short term basis, many times a buyer will agree to allow the seller to stay for free but most parties will use a fair market rent calculation to determine the rental payment.

Security deposit and late fees: The new owner can collect a refundable security deposit and establish late fees. Depending on condition, the new owner may keep all or any part of the deposit to repair any damage and clean the property. On the flipside, the buyer must return any remaining deposit within 21 days after the tenant departs.

Maintenance The interior and exterior maintenance responsibilities are assigned. Gardening service is a big one but the agreement also addresses possible repairs that might need to be made during occupancy.

Utilities: Gas, electricity, garbage, pool service responsibilities are addressed so nothing falls by the wayside before the buyer moves in.

Insurance: The buyer generally purchases homeowner’s insurance to protect the home and belongings from damage or loss due to unforeseen hazards but buyer should include a requirement for the seller to obtain renter’s insurance.

During a competitive market, agreeing to a rent-back is a great negotiation tool for a buyer but if you are getting a loan, check with your lender to make sure they are okay with the rent-back and always remember that you become a landlord and are responsible for adhering to all tenant laws in California.


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