A family member in a hot market is trying to move up.
They have lost out a couple of deals, so the right kind of frustration is starting to set in, but they keep coming across the same tactic – sellers who want to occupy after closing.
It’s not enough for these sellers and listing agents to get a premium price. On top of that, they make more outrageous demands that gives you the feeling that you’re being toyed with – just to see how high you will jump.
In this case, the sellers are wanting to rent the house after the close of escrow for 90 days at $2,000 per month UNDER the current market rate. There are multiple offers, so they’re figuring one of them will bite.
What are the pitfalls?
- The loan documents require owner occupancy within 30 days. Most lenders do random checking by having a fraud detector knock on your door to see if you live there yet. If not, the bank could call your loan due.
- Buyers are now landlords, and bill collectors. Try to collect the total rent due at the close of escrow, and a deposit if possible. Most sellers reject the thought of a deposit, so make sure all of the rental terms are clear before signing the purchase deal.
- The insurance policy should be for a rental property. If the sellers/tenants fall down and break a leg, you could be sued, and you need the proper coverage.
- Sellers asking for 90 days must not have found their next home yet – how do you know that they will move out? Make a provision that any holdover rent will be double the current rate – sellers usually object, but it doesn’t cost them a penny extra as long as they move out as agreed.
- Damages? Hopefully a deposit was tendered, but either way, make sure to conduct a Pre-Move-Out inspection so any damages caused by the sellers are acknowledged and remedied.
I told the family member that if they have any major objections to seller rentbacks, then they aren’t desperate enough yet – because it’s likely that one of the bidders will comply with the demands, and you’ll lose another one.
As long as you have a solid agreement in the beginning, you’ll forget all about it six months from now.
If these types of demands are too uncomfortable, there is an alternative. Buy an inferior house – they don’t have nearly as much competition.